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Markets Are Rorschach Inkblot Tests

Posted By Barry Ritholtz On March 2, 2009 @ 2:59 pm In Markets,Psychology | Comments Disabled

If you want to know what someone’s biases are, ask them why the markets are _____ (fill in the blank) that day.

What you will more often than not get are a series of rationalizations, twisted logic, and distorted reasoning that use the market action as a justification for whatever pre-conceived notions they may already have.

I saw examples of this in not one but two places today: From someone I expect to know better, and someone I do not.

Jeff Saut of Raymond James wrote: “The stock market has been doing some “voting” of its own since the election and the results are not good. Indeed, the S&P 500 (SPX/735.09) stood at 1005 on Election Day, but has since lost some 27%.”

Charlie Gasparino, a CNBC reporter (and Dick Fuld’s Sergeant-at-Arms), goes even further. In the DailyBeast [1], he writes:

“But for all of that they can’t believe what they are witnessing: An economic agenda that is contradictory at best, and possibly reckless in its extreme. Policies that will certainly make a very bad situation even worse, and when things do get better, they will certainly not enough be better to compensate for the pain we are experiencing. That’s what I’ve been hearing now from many of my sources on Wall Street who voted for the president, including one I received on Friday, when after days of denying that it wouldn’t nationalize the big and troubled bank, the Obama administration, nationalized Citigroup.”

I would think Saut would know better than this; I have no such expectations from Gasparino.

Hey Charlie: Does Citi still have its prior shareholders from before? Is the same management team there? Then they have NOT been nationalized — yet. When they finally are, trust me, you will know it.

Now, I can make an even stronger rhetorical argument than these guys did. The things that are bothering markets is more or less the same story that some that’s been slowly seeping into people’s stubborn brains for the past few quarters.

The top was made in October 2007, and since then, we have seen:

• This is the first quarter in the history of the S&P500 to have ZERO EARNINGS;

• The ongoing drip drip drip of never ending bailouts — with taxpayers funding its costs — is pressuring prices.

• The worst recession in many generations started over a year ago, and shows no signs of ending anytime soon;

• The market is tanking is due to the lack of nationalization — we’d better off getting it done sooner rather than later;

• The overall market trend has been down (relentlessly so) for the past 18 months;

• The overstretched consumer has retrenched and is now in savings mode;

• The US has deficits are horrific — and are only going to get worse;

• Consumer sentiment is so bad its spilling over to everything else.

• The leadership of corporate America has been shown to be so inept and incompetent that potential buyers of these businesses are marking them down to reflect this;

These are just a few obvious factors off of the top of my head. You can blame either Obama or Bush (or both), but the reality is the forces driving the market are much bigger than either of them.

Smart investors know that the day to day action amounts to little more than noise. What matters most are trend, earnings, and economic activity.

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UPDATE March 2, 2009 5:59pm

This is my favorite comment of today:

“Look at the UK, where a left-leaning government under Blair presided over the same issues as the US with a neocon Bush government. This is a repudiation of credit-based economies and unsound monetary policies, not political ideology.”

Amen . . .

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Sources:
“Atlas Shrugged!?” [2]
Jeffrey Saut
Raymond James, March 2, 2009

http://www.raymondjames.com/inv_strat.htm

Is the Worst Yet to Come? [1]
Charlie Gasparino
Daily Beast, 3/2/09

http://www.thedailybeast.com/blogs-and-stories/2009-03-02/is-the-worst-yet-to-come


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2009/03/markets-are-rorschach-inkbot-tests/

URLs in this post:

[1] DailyBeast: http://www.thedailybeast.com/blogs-and-stories/2009-03-02/is-the-worst-yet-to-come

[2] “Atlas Shrugged!?” : http://www.raymondjames.com/inv_strat.htm

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