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Vivek Sukhani
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Joined: 23/Jul/2006
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Posts: 6675
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   Topic: Whats wrong with US stock traders???
Posted: 15/Aug/2006 at 11:17pm |
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Of late I am seeing a very surprising thing.I am seeing US stocks react negatively to good news and vice-versa.They say good numbers increase the probability of rate hikes and vice versa.I cannot expect such mypoicoutlook from traders of a country which leads the other countries when it comes to investments.They are placing more importance on inflation rather than growth?This logic defies normal sense.I fail to understand what are they chasing?I beleive there is a fight going on between Dow Jones Industrial Average and Fed Rate, and nothing else.It os as if they think inflation is an independent tree and has nothing to do with growth. Inflation grows from growth...and decline in interest rates or even stagnancy in rate hikes is a harbinger to the fact that growth is slowing, which is good enough an excuse to leave the market.Then how come Dow is reacting so positively to bad numbers.
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basant
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Posted: 15/Aug/2006 at 11:32pm |
What a wonderful discussion point you have brought up. In fact I was talking about the same annamoly with a friend. In the long run stock prices follow earnings. Lower GDP will lead to lower earnings. The US GDP is very well indexed by the stock market there. Lower earnings will lead to lower prices. Now if stocks go up because people expect lower earnings then they are betting on the greater fool theory. A fool buying a stock to sell it to another fool who does the same thing.
I doubt if people in the US are stupid enough to think in such fashion. What i believe is that speculators would have short sold expecting the FEd to raise rates; when that did not came along what we see is a relief rally; bad economic news (lower profits) may take some time to come but good news is around the corner (no change in interest rate) so better cover up or do not sell.
ANother school of thought could be that the Fed's decision not to hike interest rates would not prick the housing bubbble but only deflate it. Something that analysts call as "soft landing" so the pain could be slow and gradual therefore the optimism. But irrespective of what ever happens finally economics shall take over..
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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Vivek Sukhani
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Joined: 23/Jul/2006
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Posted: 15/Aug/2006 at 11:45pm |
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Mr.asant, I will wait for this logic to arrive here in India, at the end of the present bull run.... this logic will lead is to super bul run in the period of recession!!!!!!Then India slowing down will bring a couple of hundreds points rally over here....I remember, there was a time when we started to trade gold and silver using CFTC Reports, and beleive you me, by trading like that you become foolishly contrarions.Also, DJIA has developed a strange tendency to lose all its gains in last hour's trade...which is making DJIA look extremely vulnerable on the candlestick charts.I am a peanut to discover its impact on Indian market, but I beleive such logics will make the economists appear to be the greatest idiots in the world and very soon, we will Nobel Prize for Idiocy, rather than Nobel Prize for Economics!!!!!
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Vivek Sukhani
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Posted: 15/Aug/2006 at 11:48pm |
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Mr. Dave will be able to better explain this anomaly. I am expecting some really wise words of wisdom from Mr. Dave on this....
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basant
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Posted: 15/Aug/2006 at 11:54pm |
I am not sure if any such logic can work anywhere in the world. Even if they do these things last for very short periods of time. Finally the US will have to break because their over all macro economic situation warrants that.Read this piece which i wrote for Businessworld in 2004.
ABout Noble prize for idocity I am not sure if there is one but a couple of Noble prize winners in maths and economics did not look very smart when they managed to let their fund management business LTCM go bust. Read the book " When genius failed"by Roger Lowestein.
Edited by basant - 15/Aug/2006 at 12:27pm
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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manishdave
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Joined: 05/Aug/2006
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Posted: 05/Sep/2006 at 7:13am |
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It may sound illogical but my logic is most of the big companies here are finance companies. GE/GM/Ford are all finance companies. Most retail companies are in insurance/Credit Card bus. Somebody gave gave figure that 30-50% profit of all US companies is from finance. So it is monetary game. Housing so far was driving factor after tech bubble. CNBC and other media support low rates so they hype low rates.
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BubbleVision
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Joined: 05/Aug/2006
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Posted: 05/Sep/2006 at 10:10am |
BasantJi,
That article of yours is absolutely brilliant... I had first read that in 2004
I will post my views and some links later on as i have time....
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You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer!
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BubbleVision
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Posted: 11/Sep/2006 at 8:10pm |
The Quote for this stuation
The real problems in this world is that the Stupid are sure about uncertain things, while the smart fokes are full always of doubts for certain things.
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You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer!
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