Tuesday, August 12, 2008

Rational Markets? Doubtful

Based on the market action in the past few weeks, how could anyone say markets trade rationally? Fundamentals have been completely flipped upside down, with the worst companies being rewarded with gains, while the strong performers get trashed. This is giving me more evidence of my theory that hedge funds are ruining the market. They all trade with the same or similar computer models that track trends and move money into and out of the market so quickly that fundamentals and news make little or no difference.

In the mean time, it makes individual investors want to pull their hair out. I'm not giving up on the "game plan" just yet. The Big Picture had a good piece on oil prices this morning.

As much as I'm a proponent of a new energy policy in this country, talk of opening offshore drilling can't affect oil prices like it has. The dollar has strengthened on nothing but talk and speculation. Bernanke and Paulson have done nothing but promote policies that weaken the dollar. The pendulum has swung the other way and these stocks have over-corrected. And financial stocks have over-corrected too far on the high side given all the risks and unknowns.

Rational markets? I'd like to see some evidence of that.

2 comments:

snobtrader said...

I agree with you, man

Good quote here from Keynes:

"The market can stay irrational longer than you can stay solvent."

best regards

snobtrader

Michael said...

That's one of my favorite quotes. Its so true.

Thanks for commenting,

Michael