Rumors and Greed Drive DOW

The DOW closed up +286.84 points today. Its the biggest leap of 2012. That is a hefty +2.37% jump.

The DOW was not alone. Every major world equity market was way up today.

Markets ranged from a low of a +1.43% rise on China’s Hang Seng exchange to the DOW’s +2.37% mark. London’s FTSE 100, open after the Queen’s jubilee, closed up just behind the DOW at +2.36%.

I haven’t seen that many “+” signs since my 2nd grade addition final!

It begs this question: Why are world equity markets way, WAY up?

Stock Values

Contrary to misconceptions the naive may have… company stocks are NOT valued at their worth.

Stocks are valued at what manipulators want you to think they are worth. Big difference. Today is a classic case.

Even Facebook, a garbage piece of software with questionable earning capacity locked into being run by a self-absorbed and over-aged snot-nosed kid, is still valued at $26.81. Condolences to those of you who bought it at $43/share a few weeks back on IPO day.

If valued at its worth, Facebook should be a penny stock.

Stock Speculating

From today’s big rise, stock speculators will make money one of two ways.

Way one is from selling a stock at a higher price than they bought it this morning.

Way two is from “short selling” where they don’t actually buy anything. Speculators lock into buying a certain number of shares at a later time when the stock price is much lower. They are guaranteed to profit at today’s much higher price. The difference is pocketed… like taking candy from a baby!

It’s a great gig if you can get it, but you can also get burned big time should the stock price continue to rise. You still have to buy the stocks, but now at the higher price and pay that difference up front. The other guy makes the profits. Ouch!! That’s how you lose your shirt.

I’m sure to be trashed for oversimplifying, but way #2 was a fundamental mechanism that caused the Great Recession of ’08.

Given conditions in the real world, anyone here think stocks are going to continue to rise very much?
I didn’t think so.

The short sellers are salivating so much right now the stock exchange floor will have to be mopped up!

No News is Good News

Today’s huge gains on world equity markets is predicated on nothing more than rumor and hope against hope of a turnaround in world economic conditions… and profits for speculators.

There is almost literally no good news in the world economy today.

Signs of global recession are everywhere you turn. The U.S. economy, weak at best, has had nothing but bad news the last three months. The latest is a terrible jobs report last Friday.

The entire eurozone is already in recession and the rest of the 27-nation European Union is forecast to follow this year.  Right now it is at 0% GDP growth. Germany forecasts only +0.6% GDP growth next year.

The BRICs, the so-called emerging nations, have been the only economic bright spot in the world for years. The BRICs are the worker bees of the world economy. They make the stuff everyone else buys.

Since nobody can afford to buy anything anymore BRIC economies are now falling like… welll… bricks!

So why are the markets way up all over the world over on this particular day?

Answer: There wasn’t any more bad news

I kid you not!

Today’s Events

Asian markets started out up today while everyone else slept. Nobody usually cares why they go up or down, so they are usually ignored.

Europe woke up to this tidbit of news… the European Union Q1 GDP was not revised downward as some though it might be.

Desperate, Europe’s DAX and FTSE 100 equity markets rose like rockets. Hurray… no bad news today!

There was a reality check dip later in their trading day but then zoooommm!

The American stock exchanges played monkey see, monkey do with Europe when their markets opened. Not to be outdone, American stocks more than matched both Asia and Europe.

Conclusions

The rags, like CNNMoney, credited today’s big rise to late day rumors that China, the ECB and The Fed are going to inject stimulus money into their respective ailing economies.

The problem… the rumors are not true. Theories China will do another stimulus have been around for months. The ECB has already said it isn’t going to do it for now. It’s waiting for the European Stability Fund to go active in July and see what happens.

The Fed has a meeting later this month but economists think that is to soon for The Fed be ready to act. That means a month and a half before The Fed will do anything.

That leaves us with only one thing left… short sellers salivating at the mouth!

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About azleader

Learning to see life more clearly... one image at a time!

Posted on Jun 6, 2012, in Business, culture, DOW, economics, eurozone, GDP, Life, news, Opinion, Politics. Bookmark the permalink. 2 Comments.

  1. To a certain extent the markets are a confidence game. They can rise or fall at whims. This, as you write, nay be the case here. As far as short selling, my opinion is that it should be banned. Instead of doing something positive and investing in something that they want to succeed, they bet against a company and hope for it decline. Something about this just seems wrong. But sentiment aside, short selling can actually drive a market down. Since the market can be driven by ‘rumors’ and whims, if enough people think the market is going down, then more people will short sell. The more people who are short selling the more poeple will think that the market is going down. It can to a certain extent become a self-fulfilling prophecy.

    Great post. You always write very informative articles.

    • I agree…
      Short selling takes a pessimistic outlook on the future prospects of a stock. You promise to, but don’t buy the stock now under the hopes it go down in value when you have to buy it later and that makes you richer.

      Its the mirror image of normal stock purchasing… You buy a stock now on the hope it will go up in value and you get richer.

      Both are gambles.

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