Saturday, November 06, 2010

The Stockmarket as Whack-a-Mole

With maybe 70% of stock "trading" now being only hotflashes and other black boxes of algorithmic electronic impulses, what is left in it for average "investors"?

Not much if history is any guide, which, of course, brokers tell us not to count (wink-wink, nudge, nudge) on as they spiff up the story of how this particular stock/fund/derivative-thingy has had spectacular results.

Why bother to "play" in a game that gets whacked down as soon as it pops up?

As John Hussman puts it: Lessons From a Lost Decade
Over the past decade, stock market investors have experienced enormous volatility, including two separate market declines in excess of 50%. Despite periodic advances, at the end of it all, as a reward for their patience, investors have achieved an average annual total return of approximately zero.

Put simply, greater risk does not imply greater reward if the risks that investors take are overvalued and inefficient ones.

Overall, the projected returns for the S&P 500 are now lower than at any time in U.S. history prior to the bubble period since the late-1990's (which has resulted in predictably dismal returns for investors). At present, investors rely on a continuation of this bubble to achieve further returns.

In our view, an additional round of quantitative easing will do nothing but to provoke a decline in monetary velocity proportional to the expansion in the monetary base, with little effect on either real GDP or inflation.



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