What Does NOT Move Markets? Examining 8 Claims of Market Efficiency
By Susan Walker
If everyone says that shocks from outside the financial system — so-called exogenous shocks — can affect it for better or worse, they must be right.
It just sounds so darned logical, right? Economists believe this trope to be true, mainly because they believe that investors are rational thinkers who re-evaluate their positions after every new bit of relevant information turns up.
Beginning to sound slightly impossible? Well, yes.
It turns out that logic is exactly what’s missing from this it-feels-so-right idea of rational reaction to exogenous shocks. Read an excerpt from Robert Prechter’s February 2010 Elliott Wave Theorist to see how Prechter deals with this widely held belief.
Find out what really moves markets — download the free 118-page Independent Investor eBook.The Independent Investor eBook shows you exactly what moves markets and what doesn’t. You might be surprised to discover it’s not the Fed or “surprise” news events. Learn more, and download your free ebook here.
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Excerpted from Prechter’s February 2010 Elliott Wave Theorist, published Feb. 19, 2010
The Efficient Market Hypothesis (EMH) argues that as new information enters the marketplace, investors revalue stocks accordingly. … In such a world, the market would fluctuate narrowly around equilibrium as minor bits of news about individual companies mostly canceled each other out. Then important events, which would affect the valuation of the market as a whole, would serve as “shocks” causing investors to adjust prices to a new level, reflecting that new information. One would see these reactions in real time, and investigators of market history would face no difficulties in identifying precisely what new information caused the change in prices. …
This is a simple idea and simple to test. But almost no one ever bothers to test it. According to the mindset of conventional economists, no one needs to test it; it just feels right; it must be right. It’s the only model anyone can think of. But socionomists [those who use the Wave Principle to make social predictions] have tested this idea multiple ways. And the result is not pretty for the theories that rely upon it.
The tests that we will examine are not rigorous or statistical. Our time and resources are limited. But in refuting a theory, extreme rigor is unnecessary. If someone says, “All leaves are green,” all one need do is show him a red one to refute the claim. I hope when we are done with our brief survey, you will see that the ubiquitous claim we challenge is more akin to economists saying “All leaves are made of iron.” We will be unable to find a single example from nature that fits.
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In his February 2010 Elliott Wave Theorist, Prechter then goes on to show charts that examine each of these claims that encompass both economic and political events:
Claim #1: “Interest rates drive stock prices.”
Claim #2: “Rising oil prices are bearish for stocks.”
Claim #3: “An expanding trade deficit is bad for a nation’s economy and therefore bearish for stock prices.”
Claim #4: “Earnings drive stock prices.”
Claim #5: “GDP drives stock prices.”
Claim #6: “Wars are bullish/bearish for stock prices.”
Claim #7: “Peace is bullish for stocks.”
Claim #8: “Terrorist attacks would cause the stock market to drop.”
To protect your personal finances, it’s important to think independently from the crowd, particularly when the crowd buys into what economists say.
Find out what really moves markets — download the free 118-page Independent Investor eBook.The Independent Investor eBook shows you exactly what moves markets and what doesn’t. You might be surprised to discover it’s not the Fed or “surprise” news events. Learn more, and download your free ebook here.
Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company.
11 Commonplace Market Views: True or Myth?
By Susan C. Walker
“Cash on the sidelines is bullish for stocks.” Have you ever heard some stock market pundit utter these words? Have you ever wondered if the statement were true? Read this item from the latest issue of The Elliott Wave Financial Forecast, and you’ll wonder no more:
Myth — Cash on the sidelines is bullish for stocks. This refrain rang like a gong all the way through the declines of 2000-2002 and 2007-2009. In February 2000, when mutual fund cash hit 4.2% (compared to 3.8% in November), The Elliott Wave Financial Forecastissued its “cash is king” advice. Once again, the word on the street is that there is way too much “cash on the sidelines” for stocks to fall precipitously. This chart shows net cash available to investors plotted beneath the DJIA. In December 2007, available net cash expanded to a new high, besting all extremes since at least 1992, a 15-year time span. Despite the presence of this mountain of cash, the DJIA lost more than half its entire value over the next 15 months. Indeed, as the chart shows, cash remained high right as the stock market entered the most intense part of the crash in 2008. Available cash does correlate with the market’s moves, but the market is in charge, not the cash.
--The Elliott Wave Financial Forecast, Jan. 29, 2010
Now take a look at these 10 statements and decide if they are true:
- Earnings drive stock prices.
- Small stocks are the place to be.
- Worry about inflation rather than deflation.
- It’s enough to simply beat the market.
- To do well investing, you have to diversify.
- The FDIC can protect depositors.
- It’s bullish when the market ignores bad news.
- Bubbles can unwind slowly.
- People can make money speculating.
- News and events drive the markets.
Bob Prechter and our other analysts have debunked each of these statements as a market myth. You can discover how we exposed these ideas as myths, and in turn make more informed decisions about your investing.
We’ve gathered the writings that expose these 10 statements as market myths in our 33-page eBook, called Market Myths Exposed. They come from two of our premier publications, The Elliott Wave Theorist and The Elliott Wave Financial Forecast, as well as two of our books, Prechter’s Perspective andThe Wave Principle of Human Social Behavior.
Get Market Myths Exposed for FREE
The 33-page eBook takes the 10 most dangerous investment myths head on and exposes the truth about each in a way every investor can understand. You will uncover important myths about diversifying your portfolio, the safety of your bank deposits, earnings reports, investment bubbles, inflation and deflation, small stocks, speculation, and more! Protect your financial future and change the way you view your investments forever! Learn more, and get your free eBook here.
Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company.
100+ Pages of FREE Charts & Analysis for Every Major World Market
Once each year or so, our friends at Elliott Wave International do something unheard-of in the world of financial analysis – they give it away for free!
But it always ends soon after it starts, so your time to get more than 100 pages of free analysis and forecasts on every major world market is running out.
This time they’ve upped the ante.
EWI is giving away one month of its most popular global analysis publication, a 100+ page “little black book” of investment insights called Global Market Perspective, which includes EWI’s three regional publications:
- The U.S. Elliott Wave Financial Forecast ($19/month value)
- The European Elliott Wave Financial Forecast ($29/month value)
- The Asian-Pacific Elliott Wave Financial Forecast ($31/month value)
PLUS, the 100+ page book includes analysis culled straight from EWI’s professional-grade Specialty Services, each of which is valued at $199/month. This means you also get analysis and forecasts for the following global markets:
- World stock markets (China, Japan, Korea, U.S, France, Britain, Australia, Singapore and more)
- Global interest rates (Australia, Europe, Japan, U.S.)
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Americans Reject Keynesian Economics
Richard Nixon once said, “We’re all Keynesians now.” But that was a long time ago, and it’s certainly not the case anymore (if it ever was).
While influential 20th Century economist John Maynard Keynes would say it’s best to increase deficit spending in tough economic times, only 11% of American adults agree and think the nation needs to increase its deficit spending at this time. A new Rasmussen Reports national telephone survey finds that 70% disagree and say it would be better to cut the deficit.
Forex FreeWeek at Elliott Wave International
Our friends at Elliott Wave International have just announced the beginning of their wildly popular FreeWeek event, where they’ve thrown open the doors to some of their most popular paid services to non-subscribers for one week only.
You can access EWI’s intraday and end-of-day Forex forecasts right now through next Wednesday, February 10.
Steve Jobs, Apple, the iPad, and King Gillette
By Adam Hewison
On Wednesday, after much hype and drama, Steve Jobs walked onstage and unveiled Apple’s latest creation – the iPad. Having watched almost every key address for Apple for many years I, like many others, were disappointed that the product didn’t live up to the hype. Nonetheless, Apple will sell a boatload of these products, but not as many as the iPhone.
Upon reflection, it occurred to me that Steve Jobs is changing the whole business model of Apple and I don’t believe anyone has caught on to this yet.
In all the reports I’ve read after the launch of the iPad, I think every writer /analyst missed this key point: Steve Jobs wants to be like King Gillette.
If you don’t know who King Gillette was, you may not old enough to shave. King Gillette started his business at the beginning of the century. His business model is what I believe Apple’s business model will be in the future.
Long ago, King Gillette decided to practically give the razor away at or below cost, but sell the razor blades separately.
So here’s what I think, I think Apple wants to give the iPhone and the iPad to as many people as possible at cost or with a small profit. Remember now, AT&T subsidized the iPhone and Apple gets a slice of the pie from every AT&T customer that has an iPhone. Now why would they do that you might ask?
The key reason, I would argue, is that Apple wants the magic of recurring revenues. This is the dream of many companies – to have millions of folks paying a small amount of money every month for using a service. What makes Apple stand out is the fact that they have an army of developers who are writing code for some very cool apps. Yes, there is an app for that. In fact, there is an app for almost every idea ever thought of.
Not only has the app store been widely successful, but Apple also has iTunes, and iBooks along with iTV coming down the road. So this is what I believe Apple’s business model is going to be: with 125 million people who have giving Apple their contact and credit card information, Apple has a huge base of customers much like the newspapers and magazines did in the ’60s and ’70s, but on a much smaller scale. Now Apple can upsell products to those customers at will. The genius part about all of this is the fact that other people are creating products to be sold through the Apple store. Apple just reinvented the King Gillette model in a thoroughly modern way. Hat’s off to you Steve.
That’s my take on Apple’s stealth business model.
Now let’s take a look at the stock.
In my short video, I explain to you some key factors I’m watching that I think will make the difference in this market. If you have a few minutes, please take the time to watch this juggernaut of a stock and what I think is ahead for the market in the next 2 months.
