Archive for the ‘Banana Republic’ Category
Mysterious forces were trying their best, but they couldn’t keep the stock market from swooning Wednesday.
They failed in the morning, despite massive purchases of stock index futures contracts. Within minutes of the market’s opening, the Dow Jones industrial average was down 350 points. Later in the day — after a lot of shocking ebb and flow — the Dow bottomed out with a decline of 460 points.
It was only in the last hour of trading that the market saviors managed to trim the Dow loss to just 173 points. And they succeeded only after Janet Yellen’s private, upbeat remarks about the economy were leaked.
Welcome to a new kind of stock market — one that the average investor should refuse to be invested in.
Anyone whose investments tightly track the major indices is now losing money since the beginning of 2014. The Dow is down 1.1 percent on the year, with the S&P and Nasdaq up 3 percent for 2014.
Just for the record, I’ve been telling you for years that the stock market was in a bubble and that you should enjoy it while it lasts because bubbles always pop.
Of course, if you could time the end of the bubble, you’d be doing quite well. Miss the end and you are back to where you started. Or worse off in terms of confidence and finances.
The central-bank put lives on.
Policy makers deny its existence, yet investors still reckon that whenever stocks and other risk assets take a tumble, the authorities will be there with calming words or economic stimulus to ensure the losses are limited.
A put option gives investors the right to sell their asset at a set price so the theory goes that central banks will ultimately provide a floor for falling asset markets to ensure they don’t take economies down with them.