ock Market Analysis: 02/12/10
The data shows that 83.6 percent of large investors who buy upper-price-limit-hitting the boutique s on day 0 tend to sell them on day 1. According to the study, it shows that this group of investors are not following a positive-feedback strategy. The shorter lives and the higher failure rates of technology companies can make them look cheap, when they are expensive, if you are a value investor, and their high growth rates can draw in growth investors, who may not factor in the fact that this growth is not sustainable. While this navel gazing may keep market oracles, Fed watchers and CNBC pundits occupied, I think that the Fed’s role in setting interest rates is vastly overstated, and that this fiction is maintained because it is convenient both for the Fed and for the rest of us. As the market’s axis tilts towards technology, it may be time for us to revisit the metrics and models that we have been using, almost on auto pilot, for many decades. Intuitively, you are assuming that the company will shrink over time and effectively disappear.
That argument loses its power with technology firms, raising the question of whether we are over valuing mature technology companies by using this standard mythology. The consumer discretionary sector consists of shops, media firms, client service suppliers, attire firms and durable. Relative to the size of the US treasury bond market (about $500 billion a day in 2014), the Fed bond-buying (about $60-$85 billion a month) is modest and unlikely to have the influence on interest rates that is attributed to it. The bottom one is the 200 day moving average located at $12.09. Reality: There is only one rate that the Federal Reserve sets, and it is the Fed Funds rate. This is not a post on market timing, but there are lessons here for market timers as well. In my last post on this topic, I mentioned my tour of the Federal Reserve Building, with my wife and children, and how sorely tempted I was to ask the tour guide whether I could see the interest rate room, the one where Janet Yellen sits, with levers that she can move up or down to change our mortgage rates, the rate at which companies borrow from banks and the market and the rates on US treasuries.
So at the risk of provoking the wrath of Fed watchers everywhere, and repeating what I have said in earlier posts, here are my top four myths about central banks. It is the rate at which banks trade funds, that they hold at the Federal Reserve, with each other. Myth: The Federal Reserve (or the Central Bank of whichever country you are in) sets interest rates, short term as well as long term. The Federal Reserve’s Open Markets Committee (FOMC) meeting date is approaching, and in a replay of what we have seen ahead of previous meetings, we are being told that this is the one where the Fed will lower the boom on stock markets, by raising interest rates. Would he turn towards stock markets or he will approach the public and raise money while? Thus, if rates are high, we assume that the Fed can lower them by edict and if rates are too low, it can raise it by dictate.
2) Businesses which are excellent, I have to have enough conviction and patience to continue to hold through a bad trough. So we now have a Central Bankers street party. I assume, refers to a party taking over a publicly-listed company in SGX, or what we call going-private transation. The investment boom most likely was created by industrial policy to promote heavy industries, launched by technocrats trusting the superiority of bureaucratic over market rationality. Myth: Interest rates are at historic lows not just in the United States but in much of the developed world, and it is central banking policy that has kept them there, through a policy of quantitative easing The myth acquires additional sheen when accompanied by acronyms such as QE1 and QE2, which bring ocean liners to my mind and a nagging fear that the next Fed move will be titled the Titanic! Using the tech life cycle rubric, I would argue that the PEG ratio approach will lead to too many tech companies looking cheap during their high growth phase and too few in their decline, the mirror image of the problem faced by value investors.