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Generational Dynamics Web Log for 7-Sep-05
Stock market spikes upward in huge rally as oil prices ease

Web Log - September, 2005

Stock market spikes upward in huge rally as oil prices ease

Volatility appears to be increasing as investors return from summer vacations.

The market's upward spike of 1.3% -- the Dow increased 141.87 points to 10,589 -- was caused, the pundits say, because the price of oil fell $65.96 a barrel. It was just a couple of weeks ago that the stock market fell because, the pundits said, the price of oil had reached a modern high of around $60 per barrel.

Now, how is that $65.96 a barrel is a "good" thing, while $60 a barrel is a "bad" thing?

It's because investors think they're playing a game of Las Vegas craps.

What makes Las Vegas craps so special is that each time you lay your money down and "roll dem bones," the dice have no memory. No matter how much money you've already won or lost, your chances of winning on the next roll are the same, time after time after time.

But that's not true of the stock market. Stocks have a true, intrisic value, determined by things like assets, revenue and expenses, and when the value of any stock goes way above or way below its true value, then it must soon return to its intrinsic value.

As both I and other analysts have computed, the true value of the market today is around Dow 4500. The market has not yet shaken out the stock market bubble of the late 1990s, and at 10,589, the market is overvalued by more than 100%. A stock market panic and major correction will occur with near certainty, next week, next month, next year, or shortly thereafter.

There's no way to predict exactly whan a panic will occur, but one of the signs that it's coming closer is increased volatility. These days, it's not unusual to see the Dow increase or increase by 100 points or more. And there's no reason for it, except that investors are playing Las Vegas craps.

The state of the market appears to be very ominous these days. There are wild swings, but price/earnings ratios are remaining mysteriously constant, indicating that investors and brokers are all following one another like sheep.

And that's why there's so much volatility. When investors take individual paths, betting on individual stocks, then one investor's gains are canceled out by another investor's losses, so the market as a whole remains steady; but when all investors are doing the same thing, essentially betting on the whole market rather than individual stocks, then the whole market becomes as volatile as an individual stock normally is, and it's just a matter of time before the right kind of trigger causes all investors to panic at once.

There's very little chance of making money in the stock market today, even in the short range, and there's a possibility of losing big, especially for those who have purchased stocks on credit. Any investor who owns stocks today might as well bet his entire bankroll on a roll of the dice. (7-Sep-05) Permanent Link
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Generational Dynamics Web Log for 7-Sep-05 Stock market spikes upward in huge rally as oil prices ease

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Generational Dynamics Web Log for 7-Sep-05
Stock market spikes upward in huge rally as oil prices ease