Thursday, August 04, 2011

"Efficient" My Ass

I don't believe most people know about the concept of markets being "efficient." Usually you run into this concept when you are a studious junior in college and maybe one of your academian professors decides to actually impart some genuine wisdom instead of just teaching from the book to explain the concept to you.

Regardless, the idea of "efficiency" in markets is that when information is released into the public do markets (such as the NYSE, NASDAQ, AME etc) incorporate that information and translate it into either increase or decreasing prices.

For the past 10 years, I've been amazed how the "brilliant Ivy League geniuses" over at "Goldman Sachs" and "Morgan Stanley" and "Lehman Brothers" have been unable or perhaps reluctant to take BLATANTLY OBVIOUS DATA AND INFORMATION THAT THE US IS SCREWED and still make "strong buy" or "buy" recommendations."

No, never mind the 800 pound gorilla in the room known as medicare and social security. Never mind most American children want to major in sociology or women's studies or art history and will never produce an ounce of genuine economic production. Oh, no. Let's just keep on believing in the empirically-disproved "American dream" and invest billions in "hope and change."

Of course, reality inevitably hits the market and FORCES it to be efficient. But I ask a simple question.

Do you idiots over on the east coast just drink the purple kool-aid and swallow schtick whole?

I mean how did the market NOT tank until this day?

What was special about today?

I mean, you all were truly ignorant about the severe economic and debt crises the US faced? I'm amazed the DJIA even made it past 10,000, let alone 12,000 in the past 5 years. Did you Ivy League losers NOT pay attention to the plethora of economic data that is available on the internet for free? or have you so become corrupted by nepotism, cronyism, your parents money and rent seeking you actually thought a society and economic entity based on "self esteem" and "grrrrrl power" and "diversity" and "going green" could produce genuine economic production and profits that you could make such a foolish recommendation?

Well, reality is hitting you Harvard graduate morons upside the head now. And there's nothing you can do about it.

But, of course, there is always hope and change.

I mean, your president is a Harvard graduate, right?

So at least we have the smartest and bestest leading this country, right?

Because we all know Harvard produces the "best."

Right?

I mean Bush and Obama.

What a great track record.

11 comments:

Anonymous said...

I had the pleasure yesterday of talking with a Vanguard rep - one of their professional financial advisors.

He explained to me that my asset allocation was all out of whack - I should think about investing more in something like their Vanguard Total Stock Market fund, and less in gold. I didn't have enough US "exposure".

I asked him what he would do if he seriously thought the US would default some time in the near future - worst case scenario of our debt crisis. His response? Kept coming back to that "buy" recommendation.
It ain't just the Goldman Sachs geniuses. "But that's never happened" works for most of 'em.
Bill K.

Anonymous said...

We are all going to die!

Dalrock said...

have you so become corrupted by nepotism, cronyism, your parents money and rent seeking you actually thought a society and economic entity based on "self esteem" and "grrrrrl power" and "diversity" and "going green" could produce genuine economic production and profits

Great line. I'm probably in the "efficient markets" camp, but not because I think the propeller heads in Wall Street would know how to pour piss out of a boot if instructions were written on the heel. Knowing that something is out of whack is one thing, executing a trade to profit from that knowledge is something else entirely. As you have pointed out, the markets hummed along an awful long time before figuring out that something was wrong. So you have to know when to get out, remain solvent while the markets remain irrational, and know when to get back in. Fail on any of the three and you are toast. And psychology is working against you the whole time.

With all of this in mind, the Bogleheads have generally won me over. I can't bring myself to hold the kind of exposure a good boglehead should hold on long term debt, because the inflation risk seems too blatantly obvious to me. Also, I haven't bought any gold but I have invested a bit in lead once the initial panic subsided after the great O was elected. If nothing else, it should be a good inflation hedge. Wal Mart has most ammo in stock again at pretty decent prices. Given the way other prices at the same store are moving, I'm guessing it is a matter of time before that value pack of .223, 9mm, or .45 bumps up in price. I don't plan on selling it, but I'm sure I'll use it. It also could be a valuable barter commodity if the SHTF in a serious way.

Anonymous said...

I've said it before, living in the 21st century is depressing.

The whole place is being by the asylum inmates.

Captain Capitalism said...

Wal Mart ammo is a GREAT 401k plan right now.

Dali said...

I took an introductory course in economics at my college, and this concept of market efficiency was one of the first few things we learned. It was one of the worst ideas I've heard, "efficient" markets require people to only behave rationally, which most people are apparently incapable of doing. I ended up getting a C in the class for disagreeing with the professor on a lot of things.

Dali said...

By the way, my portfolio consists of silver, .300 WM, .45 ACP, and 5.56x45mm. It has been appreciating steadily.

Anonymous said...

I find the parallel of how much of the populace bought into the "hope and change" bullshit of Obama and how many investors fell prey to the "hope" bullshit of the investment community.

There is a technical component and a psychological component to market prices. The more the psychological component holds sway over the technical component, the less efficient the market is, I think.

Any astute person could see this was "the recovery that wasn't" and all it would take to crash it would be bad economic news that couldn't be hidden or explained away. It's also clear that after the stimulus bill which didn't stimulate anything other than Democratic constituencies and after QE1 and QE2, Bernanke had no more ammunition to prop the economy up.

Fortunately, a month ago I moved a large portion of my 401K out of stocks because I knew the market would crap out eventually.

I read The Big Picture, Calculated Risk and Market Ticker among other economic blogs such as this one regularly. I've learned a lot.

We're only(?) down 10% in the last two weeks, I'm afraid that we have some ways to go yet before we bottom out.

Anonymous said...

What a shocker. I am stunned. I thought everything was all wonderful with unicorns and lollipops.

I pulled most of my stuff out about a year ago. I still took a nice hit I'm sure on what I do have left in there. But I am really not expecting to see any of my retirement investments back with our 100% of GDP spending... So I haven't bothered to look.

Anonymous said...

The goal isn't to run the markets and to make a living.

It's to get rich quick, loot the joint by whatever means necessary, and to get the hell out before the house of cards collapses. Been this way for ~10 years. I have a lot of friends in the bond market who talk to me about their buddies in stocks and particularly different flavors of commodities futures & derivatives. Being bond guys, they're disgusted by that sort of MO, or maybe just envious. Hard to say.

Anonymous said...

Commissions. They take theirs while the getting is good and to hell with the rest of us.