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Old 08-06-2002, 01:55 AM
Posts: n/a
Default Here are some of the problems

So I am reading a couple of financial websites in the morning. I love doing this and seeing how many holes and fallacies I can find in what the endless supply of journalists provide. To give you some insight think about this. I have a cousin, a whopping 22 years old. A year ago she was a French major, went to France for a month and decided she hated it. She needed a major to graduate so she chooses journalism and gets her degree from a major renowned university in May. By the end of the month she is in her internship. This is a girl that could tell you about fashion, food, travel, languages...a cultured girl. However, she knows absolutely nothing about finance, markets, etc. NOTHING! She couldn't tell you what an option was in May. Anyways her internship is at Bloomberg of all places and they school her on the basics of finance for about 3 weeks. After that its time to produce so she becomes a lead writer on muni bonds. This should tell you what the problem is with the markets these days. Bless her heart, I love her and she has done excellent work that I get to proudly read, but this is far from her life's love and she still researches basic terms such as cost of capital before finishing stories. There must be thousands like her, they all flood the airwaves and the net with stories that can quite literally move sentiment. This equity culture is getting large and more out of hand every day. True analysis isn't really getting so much reported as what stories can get attention. News isn't really the point of a lot of these stories, its just justifying high cost news services and a sense that you are there covering all markets, whether you really want to spend money covering them or not. Too much news and an emphasis on stuff that grabs attention is becoming the bane of the Street and I see it happening all too clearly. The sound-bite that was once the way politicans lived is now the way analysts live hoping to drum up business and the journalistic word is just eating it up. This reality check that my cousin has given me really just puts it all in one nice neat package.

Another problem that came too clearly this morning is what I consider the latest trend in Monday morning quarterbacking. Everyone is still searching for a return to the golden years of the late 90s. The press says things like "job market is improving, but still off from what it was two years ago." Well, duh! Oh how about "market looking for floor, traders wondering if distraught retail investors about to give in?" My thought is that retail investors are typical gamblers, they don't want to eat a loss, any kind of loss. I know a guy that just sums it up for me. He got into covered call writing. I tried to give him some advice about it, but he didn't want to hear about it. Seems Wade Cook, everyone's favorite cab driver turned stock guru, taught him all he needs to know. So this genius tried to explain to me the mess he faces in a stock I will not name. Problem is that he got his commissions, nice fat ones so that part worked. What he didn't realize is that he would have one bad run caused by the bear market and be in a tough spot. So he has 15.60 basis on a stock that is trading around 11.50 right now. I told him the premium on the 12.50 call looks pretty good to me, why haven't you sold it? He says...I can't, I want to get at least the 15 call so I don't lose money. I told him, forget the 15, you have a stock worth 11.50 and nothing more. He refuses to look at it this way. He thinks "hey I bought this around 17 and have a 15.60 basis...I don't have an 11.50 stock." I know that too many investors are like this. That holds up the market further. These guys are sitting on losses and the only way they sell them is if they have gains to offset for taxes. Otherwise they will hold and hold and hold. This prevents a better allocation of capital, it prevents activity and funding to stocks that deserve it, but most of all it just keeps the doom and gloom on the Street because all these losing stocks just keep going further down daily and these guys just lose that much more faith each day. I don't know how you change the psychology, but if I was a market mover or guru I would be addressing these very particular people and at least attempting at making them move their money around and forget where the stock used to be. When that happens things will have a better footing to make another run upwards because think of this, even if his tech stock goes up 15%, he is still buried and gloomy. If he sells the dog and buys something it might go down or up, but if it goes up 15% he will be thinking, alright I got something to win finally, lets get more involved. Little things like that will revive the market and get it moving into the positive territory and out of the purely fear based motive, but now the hard part is getting the losers to move their money.
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