PeakTrader.com

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PeakTrader said...

Shadow Stats should be named Static Stats.

Since 1982, the most dynamic economy in the world has been in a strong disinflationary growth boom, mostly from the explosion of the Information Revolution and the acceleration of international trade.

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Chart:

http://1.bp.blogspot.com/-Gc_lSkqi-OQ/TdE13DabO7I/AAAAAAAAPT0/-GzzEIBxMaI/s1600/prices.jpg

morganovich said...

"But speculators can NOT make money and destabilize markets at the same time."

i'm not so sure about this claim. it seems rooted in long term efficient markets theory.

in the short term (especially in a bubble) this need not be true, especially in the presence of "momentum" investors.

if i buy a huge slug of some crappy company with poor fundamentals and drive the price up causing a technical breakout on the chart on high volume, this may pull in technical traders who see the price move and jump in to speculate. i'll sell to them.

it was my move that "destabilized" the market, but i'm going to make money. it is the next speculators who will be caught in the stock and wind up losing money as they sell it back down to where it was. thus, i make money destabilizing and they lose money bringing the stock back to where it started.

the small cap universe is LITTERED with 3 day stock trading patterns like this.

there are traders who make their whole living playing situations like this.

it also ignores the trading strategy of selling to buy.

in a thin stock, if you cannot get a block to trade at a price you like, you sell to buy.

by driving the stock DOWN you set off all kinds of stop losses and cause a seller to get nervous and come down to your price.

you sell 100k to whack the market, then use the panic and program selling to buy 500k.

again, long term profit from short term destabilization.

there's the tried and true "pump and dump" plan where you buy a ton of stock at a low price, then get some media outlet, newsletter, or broker to hype the story. (this is the whole motley fool business model).

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PeakTrader said...

“The market can remain irrational longer than you can remain solvent.”-John Maynard Keynes

"In the short run, the market is a voting machine. In the long run, it's a weighing machine."-Warren Buffett

Speculators tend to destabilize markets. They often buy high and sell higher, and when rational investors short the market, they often cause powerful short-covering rallies, sending the market even higher, sometimes to "nosebleed" levels.

"Speculators can NOT make money and destabilize markets at the same time."

That's not necessarily correct, in part, because light buying, not heavy selling, can cause markets to fall much further (most of the sellers sold long ago, at much higher prices).

Heavy volume near or at market bottoms can be short-term traders taking advantage of greater volatility (for a trader, a volatile market is a forgiving market).

Few sellers and even fewer buyers will cause markets to fall, and markets won't stabilize, until there are enough buyers to build a bottom.

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Sprewell said...

I completely agree with Morganovich that some speculators can make money through speculation, in exactly the manners he details, but Mark's point holds that on net all the speculators as a group lose money.

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PeakTrader said...

"Speculators can NOT make money and destabilize markets at the same time."

That statement doesn't seem to be supported by the data.

For example, oil prices were around $10 in the late '90s, which reflected a lack of interest by speculators.

Oil rose to about $150, fell to $40, and then rose above $100 again, along with speculation.

Even at the low of $40, oil was much higher than the $10 before speculation.

However, I agree with the chart that speculation will raise the price of a commodity, e.g. oil, so high, it will cause future consumption to fall and future production to rise resulting in a lower future price, i.e. than without speculation.