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"a fish, a barrel, and a smoking gun" |
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Lovers' Quarrel
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.
Concrete forces, sure, if you can call "greed" a concrete force. 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.
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.
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, 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.
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 granted. courtesy of Elbeo |
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![[Fresh Fish. If you clicked here, I might make more money. You love The Fish, admit it. Now click. Click, I say!]](/daily/images/fresh_fish3.gif) |
![[did you get fishsticks on halloween?]](/daily/97/11/04/a.gif)
![[you damn sure missed out then.]](/daily/97/11/04/b.gif)
