This morning, I re-posted an article in the NY Times (link is in the Facebook scroll to the right on this page) talking about the proposed takeover of the New York Stock Exchange by the Deutsche Börse (German Stock Exchange). The author made a point which we already knew - that a healthy stock market doesn’t mean a healthy economy.
Everyone seems to wonder how we can get a roaring bull market while unemployment remains high and the housing market stinks. How corporations can be making money while nobody here seems to be able to work for them or buy their wares.
Of course, it is a little exaggeration but think about where they are selling. How much profit originates overseas? No, Joe's Hamburgers is not cleaning up but the multi-national McDonalds seems to be. IBM is not at new highs because they are selling PCs to you and your pals.
Here is another quote from the article - Innovative American companies like Apple and Google may be worth hundreds of billions of dollars, but most of them don’t ... employ many Americans.
The stock market has become a robot world where computers trade with computers and analyses based on tracking where the public is putting their money are quite ineffective. If you want to day trade, good luck to you as it is your little brain and maybe a newsletter up against Watson, IBM's gigunda supercomputer.
Investing is not dead but it has to take a different form. Taking charge of your "investments" as eSignal and Ameritrade like to advertise is garbage. What they sell is trading. Investing, a la Peter Lynch by walking around your neighborhood to see where the long lines out the door are is no more.
As a technical analyst, this is a hard pill to swallow (not the walking around but the analyses). There is still time left for us to make some money but it won't be by the same methods we used 10 years ago. Trend following seems like it should have a bigger place in the arsenal and moving average crossovers and that ilk less.
Fortunately, other markets are not quite as polluted as stocks and technical analysis still works great. In forex it is especially great. Perhaps things normailze when the Fed backs down and lets the free market work again.
Or perhaps it is the natural ebb and flow in the life of an institution (stocks) that is seeing its phasing out. The great NYSE is going to be made in Germany and guess what, they did not want it for commoditized stock trading that is going electronic anyway. Derivatives are where its at. You can call them weapons of financial mass destruction, if you like just like Warren Buffett did.
As the article said, the stock market is supposed to provide liquidity for business. If it is reduced to a dance among trading machines and the IPO market dries up than what is it really for?