Wednesday, August 29, 2007

Morons

Bargain Hunters Boost Stocks After Selloff
By Madlen Read, AP
Posted: 2007-08-29

NEW YORK (Aug. 29) - Stocks rebounded Wednesday as investors, though still uneasy about shrinking credit and its effect on the economy, scooped up "bargains" [scare quotes added] after the previous session's huge tumble...

Someone is being stupid - either them or me. We'll know shortly.
Meanwhile:
Housing Prices Fall by 3.2 Percent
By VINNEE TONG, AP
Posted: 2007-08-28

NEW YORK (Aug. 28) - U.S. home prices fell 3.2 percent in the second quarter, the steepest rate of decline since Standard & Poor's began its nationwide housing index in 1987, [emph. add.] the group said Tuesday. [...]

The index tracks the price trends among existing single-family homes across the nation compared with a year earlier .

A separate S&P/Case-Shiller index that covers 20 U.S. cities fell 3.5 percent from a year earlier. A 10-city index fell 4.1 percent from a year earlier.

Also, from Michael Shedlock:
The other argument about cheapness of stocks has to do with forward earnings. Few have bothered to look at why earnings were high, the quality of those earnings, or whether or not those earnings will be repeatable.

6 Comments:

Blogger erp said...

Nobody made the connection to the astronomical rise in housing costs either. They rose 30% and went down 4.1%. Panic city.

August 29, 2007 1:22 PM  
Blogger Bret said...

Since more than 227 million shares traded hands there's probably literally a million different reasons why people bought and sold today. Perceived bargains is only one of them. You generally can't make too much of day-to-day price fluctuations.

Few of the reasons for making trades were probably moronic though.

August 29, 2007 2:10 PM  
Blogger Oroborous said...

Few of the reasons for making trades were probably moronic though.

Everone has a reason for doing what they do, but some of those reasons are objectively stupid.

And regardless of rationale, outcomes matter. Moronic is as moronic does.

Therefore, if both the general economy and the stock market behave as I expect that they will over the next year, people who were bargain-hunting today were doing so foolishly.

But perhaps it will turn out that I was the fool, for not buying when the gettin' was good. As I wrote, time will tell.

August 29, 2007 2:19 PM  
Blogger Bret said...

oroborous wrote: "Moronic is as moronic does."

I'm not sure I'm following you. Are you saying that if you buy a stock with the intention of making a profit and it goes down that it's objectively stupid?

August 29, 2007 4:29 PM  
Blogger Oroborous said...

Are you saying that if you buy a stock with the intention of making a profit and it goes down that it's objectively stupid?

No. Mistakes happen, and nobody, but NOBODY, is immune from making errors in judgement with regard to markets - any market, in any industry.

However, buying stocks because they're "bargains", with the Dow a mere 6% down from the nominal all-time high, with the economy's warning lights all in the red and flashing, and with the "recession klaxon" sounding, is either speculation of the most egregious kind or simply moronic. (Or genius, if I turn out to be completely wrong).

If the general economy, which the stock markets eventually reflect, is growing like gangbusters, then why does everyone think that the Fed will or ought to cut rates at their next meeting ?

As a point of interest, under what conditions do people or institutions buy stocks without the intention of making a profit, (except for the semi-mythical Plunge Protection Team, of course) ?

August 29, 2007 9:04 PM  
Blogger Bret said...

"As a point of interest, under what conditions do people or institutions buy stocks without the intention of making a profit..."

I was just trying to be absolutely clear. I'm sure most people buy stock to make a profit. I suppose they're might be some odd case where in order to avoid a tax penalty someone might try to generate a loss, but I'm not sure.

On the other hand, I've certainly bought stock where I was completely unconcerned about whether or not it was going to be profitable buying that day or even month. If I'm buying a stock for a five to ten or even more year period, I often buy it piecemeal over a few month horizon to get an average price with no concern over localized fluctuations. I didn't buy any stock yesterday, but it would easily been possible that I might've executed an order for a piecemeal purchase, in which case I guess I would've been lumped in with moronic bargain hunters.

Nearly everyone who buys stock ever believes that the expected return for that stock over the time frame they expect to hold it is both positive and competitive with other investments (or just holding cash). In other words, they think it is a bargain.

I personally don't see overly strong recession indicators. There's always something and I know you're very focused on this housing thing, but 2nd Qtr. growth was just upgraded to 4.0%, profit growth is fine, P/E ratios are reasonable, technology continues to advance, productivity growth numbers seem solid, oil prices are stable, hurricane season is mild (for the U.S.) so far, unemployment is stable, poverty ticked down, etc., so not all news is bad.

August 30, 2007 9:59 AM  

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