Question for Fruitcake (and BBS)

[thegreekdog]

Currently, stock prices are generally up.

I've heard concerns from politicians, as well as corporate CEOs, that the sequester and related items (i.e. not just the sequester) would result in a sharp downturn of the economy, including with respect to stock prices.

Thoughts on why there is a contradiction between expectations and reality? I know economists and politicians get it wrong as often as they get it right, but it's a bit confusing that there was so much agreement as to the forecast, which is vastly different than the reality. Are we expecting a correction to the stock market in the near future?

[PLAYER57832]

I realize you addressed BBS and AA specifically, and for good reason, but they happened to have a Morning Edition segment on exactly that topic. Thought you might find it pertinent:
http://www.npr.org/2013/03/08/173784385 ... mprovement

[BigBallinStalin]

Currently, stock prices are generally up.

I've heard concerns from politicians, as well as corporate CEOs, that the sequester and related items (i.e. not just the sequester) would result in a sharp downturn of the economy, including with respect to stock prices.

Thoughts on why there is a contradiction between expectations and reality? I know economists and politicians get it wrong as often as they get it right, but it's a bit confusing that there was so much agreement as to the forecast, which is vastly different than the reality. Are we expecting a correction to the stock market in the near future?

Whoa whoa whoa whao whoa. Let's think this through.

"Currently, stock prices are generally up."

(1) Which stock prices? Or which indices (S&P, DIJA, TSE)?
(2) How do you know (all) stock prices are increasing on average?

[thegreekdog]

Currently, stock prices are generally up.

I've heard concerns from politicians, as well as corporate CEOs, that the sequester and related items (i.e. not just the sequester) would result in a sharp downturn of the economy, including with respect to stock prices.

Thoughts on why there is a contradiction between expectations and reality? I know economists and politicians get it wrong as often as they get it right, but it's a bit confusing that there was so much agreement as to the forecast, which is vastly different than the reality. Are we expecting a correction to the stock market in the near future?

Whoa whoa whoa whao whoa. Let's think this through.

"Currently, stock prices are generally up."

(1) Which stock prices? Or which indices (S&P, DIJA, TSE)?
(2) How do you know (all) stock prices are increasing on average?

The DOW is at a record high.
NASDAQ is substantially up.
The S&P 500 is substantially up.

[Fruitcake]

Currently, stock prices are generally up.

I've heard concerns from politicians, as well as corporate CEOs, that the sequester and related items (i.e. not just the sequester) would result in a sharp downturn of the economy, including with respect to stock prices.

Thoughts on why there is a contradiction between expectations and reality? I know economists and politicians get it wrong as often as they get it right, but it's a bit confusing that there was so much agreement as to the forecast, which is vastly different than the reality. Are we expecting a correction to the stock market in the near future?

I can only answer this subjectively (as I trade anyway). I am still expecting improvement in the markets, both in London and NY. I mentioned this in the 'Greek Government Already Showing Cracks' thread.

....... I have had my eye on a small select few stocks here in London and NY (can't be bothered with Frankfurt or Paris Bourse because I don't do small potatoes, they are only of use to those with small appetites). I believe there is going to be a spike a la 2000 and 2007 (or even 1986) except this time the spike will be higher. After all, we are only at the same levels now to where those 2000 and 2007 surges ran out of steam and we are some years on from the first. I reckon there's plenty of movement in there yet. the question is where?

Fundamentals are going to be the choicest to be around. I see quite a few of the fashionable stocks hitting the skids as realisation dawns that they are bubbles and little else......

I am still of the opinion those fashionable stocks are going to receive something of a drubbing in the near future. However, often when this happens there is a flight of capital to fundamentals.

Over this side of the pond, many may not believe I would take the position of agreeing that bankers bonuses should be capped, but I do. Shareholders should have done this a while back, but failed to do so. I don't see the US avoiding much the same rules as Obama acts with a populist measure. This, in turn, may well have a beneficial effect on Bank share prices as the dust settles and those institutions actually start to make real capital rather than the Alice in wonderland stuff they have been up to over the years.

[patches70]

Currently, stock prices are generally up.

I've heard concerns from politicians, as well as corporate CEOs, that the sequester and related items (i.e. not just the sequester) would result in a sharp downturn of the economy, including with respect to stock prices.

Thoughts on why there is a contradiction between expectations and reality? I know economists and politicians get it wrong as often as they get it right, but it's a bit confusing that there was so much agreement as to the forecast, which is vastly different than the reality. Are we expecting a correction to the stock market in the near future?

Is it government spending that is driving the stock prices higher, or
is it the $85 billion a month The Fed is pumping into the market every month what is driving the prices higher?

Will sequestration affect The Fed's pumping?

What happens (to the market) when the time comes (and it will come) when The Fed has to raise rates and stop pumping that $85 billion a month into the market?

[thegreekdog]

Thanks guys. Hate to be rude, but I understand most of those things and you haven't really answered my question. I'll try to ask it a different way.

Vocal Economists and Government-Types: "The U.S. sequester will cause a depression in the U.S. stock market."
Dow Jones, NASDAQ, etc.: Stocks prices, generally, go up rather significantly (this includes fundamentals as well as "flavor of the month").

Were the vocal economists and government-types wrong?
Was it, as my brother-in-law said, that the stock market is six months ahead of everything else (or was it six months behind)?

[AndyDufresne]

Sometimes I wonder if the companies tracked in the Dow or NASDAQ still really reflect the American economy, like they did half a century or more ago.


--Andy

[Fruitcake]

Thanks guys. Hate to be rude, but I understand most of those things and you haven't really answered my question. I'll try to ask it a different way.

Vocal Economists and Government-Types: "The U.S. sequester will cause a depression in the U.S. stock market."
Dow Jones, NASDAQ, etc.: Stocks prices, generally, go up rather significantly (this includes fundamentals as well as "flavor of the month").

Were the vocal economists and government-types wrong?
Was it, as my brother-in-law said, that the stock market is six months ahead of everything else (or was it six months behind)?

Thanks, and will attempt to answer exactly.

Vocal Economists and Government-Types: "The U.S. sequester will cause a depression in the U.S. stock market."
I disagree. Yes, the sequester would have an impact on Govt spend but I have always been of the opinion that govt. types tend to think their contribution to real money is far greater than it actually is. Markets are a lot larger than Govts, fact.

While there may be some adjustment to those specific industries affected (defence as an example) this adjustment will be reflected and countered in other areas as spending there increases. In short I would see a sequester as ultimately causing a small surge in prices due to perceived values of certain sectors increasing. So my response to the question "Were the vocal economists and government-types wrong? " would be most definitely. But then I have always thought those two august bodies of financial intellectuals have far too much to say on matters they have little understanding of (for an example, find me an economist or politician who has managed to ever get anything right when forecasting financials).

The stock market tends to work on perceived value these days. This includes building potential value into the current price, so any fall in real value has most probably been factored in anyway. Now this may seem to contradict my previous statement (in that any increase is also factored in) but history shows that the factoring is often tight when compared to reality so there will be a further decrease/increase in stocks.

Hope this is more what you were looking for.

[thegreekdog]

It does, thanks.

[patches70]

Were the vocal economists and government-types wrong?

Are these the same economists and government types that failed to see the crash coming back in 2008?

I think you might have something of an answer!

[Fruitcake]

Were the vocal economists and government-types wrong?

Are these the same economists and government types that failed to see the crash coming back in 2008?

I think you might have something of an answer!

Succinctly put.

[thegreekdog]

To be fair, I already had an answer, namely that the economists and political-types had an agenda when crafting their messages, but you guys satisfied my theory as well.

[AndyDufresne]

To be fair, I already had an answer, namely that the economists and political-types had an agenda when crafting their messages, but you guys satisfied my theory as well.

TGD, moral of the story is, everything is made up. Even me. Even you.

So, with that now understood, lets go jump off some buildings!


--Andy