Michael Covel: News & Info.

U.S. stock markets are roaring. What does it mean? You should be long. Why? They are going up. How long will they keep going up? No one knows. “That’s not a good enough answer for me! Why not? What is the alternative?

Barry Ritholtz writes at his blog:

…this video clip from the South African jungle. It is utterly fascinating — I can guarantee you’ve never seen anything like this before. Perhaps there are some lessons in it for life.

He is right, this video of the “wild” is teaching a lesson for many aspects of human life.

A good read that adapts Leonardo Da Vinci precepts to trading.

From the AP comes news of the new Chinese “stamp tax” on trading:

BEIJING (AP) — China’s move to raise a tax on share trades, aimed at slowing a boom that could lead to a possible market bubble, seems to have worked, at least for now. The main Shanghai Composite Index tumbled 6.5 percent to 4,071.27 Wednesday after hitting a record high on Tuesday. The Shenzhen Composite Index for China’s smaller second market fell even more, closing down 7.2 percent at 1,199.45. The decline in Chinese shares hit other markets, too, although not as dramatically as on Feb. 27, when investors around the world flinched from a nearly 9 percent slide in the Shanghai index. The retreat in Chinese shares came after the Finance Ministry tripled the “stamp tax” on stock trades from 0.1 percent to 0.3 percent, effective Wednesday. The ministry was trying to “cool (the) stock market,” the official Xinhua News Agency said. “This policy change reveals the government’s concern about a possible stock market bubble,” said Citigroup economist Minggao Shen, describing the tax hike as Beijing’s first formal move to cool the boom. “The market didn’t know what the government was thinking until now.” Despite the drop, Shanghai’s benchmark index is still up 52 percent for the year, following a 130 percent jump in 2006.

Why doesn’t the AP reporter have the guts to say that sounds nutty as hell? A stamp tax? Picking bubbles? Deflating them a little, but not too much? All organized by typical government busy bodies? But perhaps they have figured out, perhaps this all ends well. I smell the same kind of aroma that took over America up until March 2000.

We never see the future.

John Allen Paulos is his book Innumeracy writes:

Some would-be advisor puts a logo on some fancy stationery and sends out 32,000 letters to potential investors in a stock letter. The letters tell of his company’s elaborate computer model, his financial expertise and inside contacts. In 16,000 of these letters he predicts the index will rise, and in the other 16,000 he predicts a decline. No matter whether the index rises or falls, a follow-up letter is sent, but only to the 16,000 people who initially received the correct “prediction.” To 8,000 of them, a rise is predicted for the next week; to the other 8,000, a decline. Whatever happens now, 8,000 people will have received two correct predictions. Again, to those 8,000 people only, letters are sent concerning the index’s performance the following week: 4,000 predicting a rise; 4,000 a decline. Whatever the outcome, 4,000 people have now received three straight correct predictions. This is iterated a few more times, until 500 people have received six straight correct “predictions.” These 500 people are now reminded of this and told that in order to continue to receive this valuable information for the seventh week they must each contribute $500. If they all pay, that’s $250,000 for our advisor. If this is done knowingly and with intent to defraud, this is an illegal con game. Yet it’s considered acceptable if it’s done unknowingly by earnest but ignorant publishers of stock newsletters, or by practitioners of quack medicine, or by television evangelists. There’s always enough random success to justify almost anything to someone who wants to believe.

This is a great example showing how unsuspecting (& hopeful) people can be swayed into believing that a guru has magical predictive powers. It happens all the time.

From LiveScience.com comes another attempt to have nature be more important than nurture when it comes to achievement:

A quick look at the lengths of children’s index and ring fingers can be used to predict how well students will perform on SATs, new research claims.

(more…)

An excerpt that for most people will make them “uncomfortable”:

Washington—Whether people are making financial decisions in the stock market or worrying about terrorism, they are likely to be influenced by what others think. And, according to a new study in this month’s Journal of Personality and Social Psychology, published by the American Psychological Association (APA), repeated exposure to one person’s viewpoint can have almost as much influence as exposure to shared opinions from multiple people. This finding shows that hearing an opinion multiple times increases the recipient’s sense of familiarity and in some cases gives a listener a false sense that an opinion is more widespread then it actually is.

More (including PDF report)

From the WSJ comes a list…

Sept. 5, 1929 — “Sooner or later a crash is coming, and it may be terrific.”
– Businessman and statistical analyst Roger Babson, quoted by John Kenneth Galbraith in “The Great Crash 1929″

Mid-October 1929 — “Stock prices have reached what looks like a permanently high plateau.”
–Yale economist Irving Fisher, just days before the market crash

Nov. 6, 1982 — “Sell all stocks. This is a bubble market, not the normal entrance to a new bull market. … The recent rise of 37.1% in the Dow average in 12 weeks is the largest bet Wall Street has ever placed on expected economic recovery. It equals the final blowoff rise between June and September 1929.”
– Technical analyst Joseph Granville, after the U.S. had entered a new and at that time unidentified bull market

Oct. 19, 1987 — “The Dow could be as low as 1900 next February.”
– Market strategist Elaine Garzarelli of Shearson Lehman Brothers, a couple of weeks before “Black Monday.”

March 17, 1999 — “How high will the market go? … Our calculations show that with earnings growing in the long term at the same rate as the gross domestic product and Treasury bonds below 6%, a perfectly reasonable level for the Dow would be 36000 — tomorrow, not 10 or 20 years from now.”
– James K. Glassman and Kevin A. Hassett of the American Enterprise Institute, in Wall Street Journal commentary

March 28, 2000 — “What we are concerned with is the market is not as undervalued as it was.” And: “We didn’t make bearish comments today. What we said was, we have been very bullish, that was correct. We now are less bullish than we were.”
– Analyst Abby Joseph Cohen, of Goldman Sachs, about three weeks after the Nasdaq reached what remains its all-time record, 5048.62. About two weeks later, the Dow and Nasdaq suffered their biggest point losses to date, 617.78 for the Dow and 355.49 for the Nasdaq.

A May 22 2007 article in FT.com China’s day-traders look for ‘black horses’ by Geoff Dyer is scary yet comical:

The thousands of ordinary Chinese who are signing up each day to trade shares are not too concerned about the conventional ways of valuing a stock, but they need to know the difference between a ghost and a black horse. Chinese have combined a traditional delight in word-play with their new-found passion for stocks to create a rich supply of colloquial jargon for investing that is bandied around brokerage offices. “Ghost shares” are highly risky, but “black horses” have beaten expectations. Buying cheap to sell high later is known as “fighting for the hat”, while selling at a loss to avoid further losses is “meat slicing”. Investors who think a piece of news will boost prices claim to be “lifting the sedan chair”. When a fund manager was sacked last week for allegedly manipulating share prices, websites hummed with talk of “rat investors”, the term for insider traders. There is even a Chinese phrase that could define the current boom. On top of bulls and bears there is the “deer market”, when large groups of amateur, short-term speculators cause markets to move in erratic jolts. The jargon is being quickly learned by the long lines of new day-traders who have helped push share prices up 52 per cent this year – on top of last year’s 130 per cent rise – but who are making the market look increasingly over-valued. Despite an interest rate rise on Friday aimed at cooling the market, retail investors ignored the messages from Beijing and opened 287,000 trading accounts on Monday, 35,000 more than on Friday. The explosion in day-trading has created some unintended consequences in Shanghai in the form of unwashed dinner dishes, badly ironed shirts and dusty floors. In recent weeks the city has developed a shortage of ayis, the domestic helpers who do chores in the homes of middle-class families, because some have found more gainful employment playing the market. Sheng Min, who runs a Shanghai agency that recruits ayis, says his company started to face problems finding new domestic helpers in April because of the stock market fever and now has 50 per cent fewer women on its books than usual. “We occasionally receive phone calls from employers complaining about their ayis,” he says. “Some of them seem to be more interested in chatting about stocks with their friends than working.” Zhang Wei works most weekday mornings in several houses around the city, but for the last few weeks she has been visiting a brokerage in the Hongkou district of Shanghai in the afternoons. “Last month I made almost half my salary from investing,” she says. With an eye on the new day-traders, a man placed an advert on the Taobao auction site last week selling signed doctors’ certificates for one month off work for Rmb100 ($13, €9.70, £6.60). The advert has since been removed. Cynics would say speculator-ayis are a sure sign of a bubble, but if everyone continues buying, prices will keep going up – even in a deer market.

Copyright. The Financial Times Limited 2007