Interesting Articles for the Week 09/25
Posted by Frugal on September 26th, 2006
Some good readings from the internet:
- Have you seen Mad Money by Jim Cramer? An academic study showed that Cramer’s effect that makes recommended stocks jumped by 2% to 5%, and later reverted back to the original price, are because suckers bought into the Cramer hype at higher prices. Certainly the best way to lose 2% to 5% of your money.
- Fall in the gasoline price could be a conspiracy by Goldman Sachs! A tweak in the GSCI commodity index, widely followed by some mutual funds and institutions, coincide with the recent peak of gasoline price. Not sure how gasoline can go from 8.45% down to 2.3%. 2.3% sounds too little to me for a commodity mix.
- And Mark Hulbert does it again! He is the BEST columnist at MarketWatch.com. Pretty much every article by him is an excellent analysis. Housing market isn’t necessarily a predictor of stock movement. I’m not sure why I fell into the trap last week. Probably I wasn’t paying enough attention. To have any such strong predictor on the stock market is simply impossible. Otherwise, someone could have made billions of dollars just from the predicted chart.
P.S. You probably guess it right. I’m exhausted from my work. So I’m putting up a reading list instead. I haven’t replied on some comments, not to mention that I have no time to blog. My work is close to a project completion, and I’m extra busy.
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September 26th, 2006 at 8:26 am
Frugal,
See this link for the complete set of data on housing vs. stocks:
http://www.itulip.com/forums/showthread.php?t=458
It is true that correlation is not the same as causation, but correlation shouldn’t be dismissed out of hand either. The stated mechanism is that the slowing housing market causes unemployment in the RE related sector and reduce consumer spending through MEW and wealth effect which brings an economic slowdown. Of course, the bulls would have you believe in a soft landing a la 1994 is in the cards without any regard to the macro differences between now and then. ContraryInvestor ran an interesting comparison a while back, I’ll try to dig it up.
The stock market is partying like we’re back in 1999 but the commodities and bonds are saying otherwise. We’ll see who’s right soon enough.
ML
September 26th, 2006 at 12:05 pm
Interesting weblink here which relates to this story. Cramerwatch.org is a site which compares his stock picks to those of “Leonard the random Monkey.” It’s a fun little spin on the random walk hypothesis. Plus, it doesn’t make Jim look all that talented.
September 26th, 2006 at 12:10 pm
ML,
I’m not dismissing any of the housing slowdown that could cause stock market to drop. I’m so acutely aware of that. In fact, it is one of my major reasons for investing in precious metals. I just don’t want to sleep and wake up to find out that FNM is going bankrupt, and US government will bail it out by issuing trillions of more debts, which would cause both the US bond and currency market to crash.
I only meant to say that you cannot really predict stock market with such high correlation/accuracy. I think it will probably FALL, but just fall with a different curve.
September 26th, 2006 at 12:11 pm
Russell, thanks for your pointer on cramerwatch.org. Looks like Cramer is really making a big name for himself.