Understanding November 1987
UNDERSTANDING THE ‘MARKET’
Everyone is now aware that the largest gambling organization in the world; usually known as the ‘Stock Market’, blew its fuse on the nineteenth of this month, (October) and suffered the convulsions that always accompany such a loss of control. Melancholy brokers reported that approximately one trillion dollars (one thousand billions) had simply vanished from the U.S. economy. So far , no one has bothered to explain that a considerable percentage of the vanished trillion had gone into the pockets of the hungry bears, who had started the avalanche by selling short a few million shares of stock they had never owned, and buying it back when the price had fallen enough to satisfy their greed without destroying the entire structure of the market.
It often happens that the ‘Bulls, who make their fortunes by buying stock when the price is low, and selling when it is higher, become so comfortable while grazing in the lush fields of a rising market, that they forget that, just outside the fence, there are lean and hungry bears who make their living by selling stock they have never purchased, when it is high, thereby driving down the price, and buying back their ‘shorts’ while the price is low!
The number of bulls almost always substantially exceeds the bear which is necessary to allow the market to function at all, but the plans of the bears are often assisted greatly by the thousands of more timid bulls who, in a rising market are fearful of losing their gain Who look at the price/earnings ratio of the stocks they hold, know that they are overpriced and probably due for a ‘correction’, they will be poised to dump their stocks at the slightest sign of a falling market. They are the loose snow on the steep hillside, that the leas vibration or loud noise, will start downward in the resulting avalanche. Bears need but to create the vibration by selling a few million shares at a price slightly lower than the previous quotation. (They can do this without loss, since they will buy it back a few days later at a much lower price.) The media, noting the lower price at which the stock was sold, will make the loud noise, and what will follow will be inevitable.(Note that, in the present case, there were several smaller warning sell-offs on Thursday and Friday the 15th and 16, while the main event was staged on Monday the 19th, followed by a few smaller ‘aftershocks’ in the next few days.)
Most people, which I am sure includes our members, whether or not they own any stock, are feeling some concern as to whether history will repeat itself. Whether the period of 1929 thru 1933 must be endured again, or whether we have developed enough intelligence in the in the 58 years that separated the two events, to handle this one a little better than the last. No one can say for sure, there is evidence that points in both directions, but the majority is favorable. In this case fewer persons were playing on a margin, so that while almost everyone lost somewhat, not nearly as many lost everything. In the second place, because of the many charitable and social security organizations that have grown up since the last crash it is no possible, though not pleasant, to live without money, as several millions of people in this country are already doing. In the third place, the connection between the stock market and the corporations whose stock they sell, has become almost non-existent. (A few days ago, a well known blue chip stock lost more than 8% of its value on the day after it had officially announced that it was having the most profitable year in its history!) It is clear that the market price of its stock will have little effect upon the amount of profit the company makes or the amount of dividends it pays. In fact, if the company pays the same dividend next year, on a share of stock that cost half as much as it did last year, it may be a very attractive investment no matter what happens to be the face value of the stock!
For those who wish to play the market, there is only one rule of thumb that can be depended upon. Whatever the Majority of those playing the market BELIEVE will happen, will happen indeed. To paraphrase a well known biblical saying, “That which is feared the most will certainly come to pass.” If the majority believe that a certain stock will increase in value, they will buy that stock and of course its price will rise so long as they continue to buy it. When the majority believe that a certain stock, or all stocks are about to fall in price, they will begin to sell, and the stock or stocks will indeed begin to fall, thus justifying their fears. It need not have anything whatever to do with the state of the economy or the welfare of the nation.
The only advice that can be given at the moment is – If you should hear people in positions of authority saying things like, “We have nothing to fear but fear itself.” they will probably be right. but if you hear, “Prosperity is just around the corner!” or, “In time the economy will restore itself without government meddling,” or “What’s good for General Motors is good for America.” Then it will be time to head for the cyclone cellar, prepared for a long stay!
(signed Daniel W. Fry)
Knowledge comes, but wisdom lingers
Well done, is twice done.
If you don’t know where you are going. any road will get you there.
A fake friend and a shadow attend only while the sun shines.
Happy is a house that shelters a friend (Emerson)
A MORNING PRAYER
Oh, may I be strong and brave today,
And may I be kind and true;
And greet all men in a gracious way,
With frank good cheer in the things I say
And love in the deeds I do.
May the simple heart of a child be mine,
And the grace of a rose in bloom;
Let me fill the day with a hope divine
And turn my face to the sky’s glad shine,
With never a cloud of gloom.
With the golden levers of love and light
I would lift the world and when
Through a path with kindly deeds made bright
I come to the calm of the starlight night,
Let me rest in peace. Amen.
By permission. Nixon Materman.
A good example is the best sermon.
observe all men., thyself most
A good laugh is sunshine in a house
To make the world a friendly place
One must show it a friendly face
Lost time is never found again.
Thank you for allowing us to be of service.
(hand written) We wish you a warm, happy and loving Thanksgiving!
Cleona Q. + Daniel, too.