Tuesday, November 10, 2009

DOW 10,000+: Skeptic's Rally, or FOOL'S Rally?

Last year, before the September stock meltdown, I tried to warn all who would listen to get out of the stock market and put their monies in safe, stable investments - like CDs, or money market accounts. I noted that the gains made were all smoke and mirrors, largely based on companies' buying back their own stocks to drive up share prices. Few listened or followed my advice, now their 401k's, IRAs are depleted.

Now, as we learn from today's Wall Street Journal (DOW Leaps in Skeptics' Rally, p. A1) the current "rally" is being propelled by trillions of dollars in debt-financed stimulus money. The debt on the part of the taxpayers, who had to cough up trillions for the Wall Street traders and pushers to "enhance corporate profits- making stocks appear more attractive".

The problem here, as I noted in a previous blog entry, is that the rally is based on sand - quicksand. And anyone invested in it is either one of those guys that P.T. Barnum once opined is "born every minute", or a fool, or a hyper-optimist(which may well be the same thing, and why negative thinking is more to be commended than positive, as new research shows).

The tragedy is, as the WSJ article goes on to note, that the false success of this pseudo-rally has left money managers scrambling. If they don't act like lemmings, in other words, the hare-brained investors chasing yield may well look elsewhere. These managers thus feel they have to make risky bets in order to keep up with the market.

Haven't we seen this sordid soap opera play out before? Are people really too dumb to recall, or process the past, or do they just act that way? Or has the DOW simply appropriated their remaining functioning neurons as the magic numbers float by on crawlers of various HDTVs: 10,000, 10,100, 10, 300........11,000? 550????

The most intriguing observation in the piece? That so many investors are truly feeling skittish and that the good times can't last. As the article observes, "for these people the market has taken on a 'greater fool' feel, meaning that many don't really believe in the investments they are making".

REALLY?

Then WHY make them? Or are you so anxious to try to win a few bucks back you'd risk the nest egg you have left?

But maybe there's another purpose!

The article notes these "fools" are "banking on being able to sell to a greater fool later".

Well, good luck with that, as they say.

As far as I am concerned I will stick with the unsexy, plodding realm of CDs, money markets and passbook accounts.

Which is mayhap why I haven't lost 40% of my money like some of my friends have!

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