"a fish, a barrel, and a smoking gun"
for 4 November 1997. Updated every WEEKDAY.
Lovers' Quarrel


[did you get fishsticks on halloween?]

The boosterism of the New York

Stock Exchange is tempered by a

strange, willful practicality,

Scully-like in its refusal to

levitate the curtain of

disbelief too high. While it

praised the market as efficient,

energetic, and so gosh-darn

useful as to seem almost

magical, it's careful not to

turn praise into proselyting. As

the NYSE itself puts it:


If you didn't know better, you  
might think the stock market had
a mind of its own. Simply watch 
the stock prices for a week and 
chances are you'll see them drop
or rise - sometimes by dramatic 
amounts. Trying to make sense of
those shifts might seem         
difficult, but closer           
examination would reveal that   
stock prices are shaped by      
concrete forces. Stock analysts,
in fact, make their living      
charting these forces and their 
effects on companies,           
industries, and national and    
international economies.        


[you damn sure missed out then.]

Concrete forces, sure, if you

can call "greed" a concrete



Oh, maybe we're being unfair.

Perhaps the force that makes

the money go 'round isn't so

base as all that. Perhaps the

market is driven by faith: If we

put our heads together, think

the right thoughts, intone the

right words, and just believe

really hard, we can conjure up

truly magical returns - and

maybe even find love (or at

least a nice pair of pants) in

the process.


Let's get some facts straight

from the start. Almost no money

is raised on the stock exchange.

Yes, firms go public now and

then, for sure - an enchanted

transaction that can make

entrepreneurs, investment

bankers, and their Ferrari

dealers very rich. But by Wall

Street standards, IPOs amount to

pocket change. When you buy a

stock, you're almost always

buying it from its previous

owner; none of the money you pay

for 1,000 shares of Applied

Materials will find its way to

Santa Clara.


[much salier than chocolate.]

Nor does the stock market have

all that much to do with what

Wall Streeters, in moments of

unconscious candor, call the

"real sector" (finance

presumably being the unreal

sector). Over time, the market

has done best when the economy

is weak, and worst when it's

strongest. And, despite the best

efforts of finance professors,

it defies rational explanation.


Finance theory can't explain why

stocks yield two or three times

as much as bonds (an unsolved

mystery known in the trade as

the "equity premium puzzle").

Basic arithmetic can't explain

why stock portfolios have

historically grown two to three

times as fast as the economy.

And only a psychiatrist could

explain why mutual fund

investors polled by Montgomery

Asset Management think that the

market should return 34 percent

a year for the next decade -

4 times its historical

average and 10 times the rate of

GDP growth over the last 75

years. Such a rate would bring

the Dow to 139,962.58 on 28

October 2007, a number so

seductive that you just have to

believe it.


[i'm going to be bad tonight]

So forget mundane things like

risk premia and capital flows

and contemplate instead the

erotic wonders of the market.

Tuesday morning's recovery,

reported The Wall Street

Journal, was "a sweeping

reaffirmation of [investors']

love affair with stocks."

(Thankfully, it's the kind of

love that allows for multiple

partners - polygamy with neither

medical, legal, nor emotional

complications.) Of course, into

every love affair comes a little

conflict, and, as the Journal

speculated in another article,

the calendar seems to have

something to do with it. October

is a star-crossed month for

stocks; it's when the crashes of

1929, 1987, and 1989 also

happened. Why? Maybe it's

because aside from crashes, it's

also the temporal home of

Halloween, earlier nights,

chillier air, and an

insufficiency of sunlight for

our pituitary glands.


[nick didn't make any plans though....]

But October's almost over, so we

can look ahead to many sensual

joys ahead, at least 11 months'

worth. As no less a sourpuss

than Alan Greenspan speculated,

we might one day look back on

this crashlet as a "salutary

event." While he explained the

salutariness of the event as

breaking the economy of its

habit of "drawing down unused

labor resources at an

unsustainable pace," what he

really meant was that it

reminded us how much we love our

shares - how we should cherish

them and never take them for


courtesy of Elbeo

[Fresh Fish.  If you clicked here, I might make more money. You love The Fish, admit it.  Now click. Click, I say!]