Sunday, November 11, 2012

Believe None of What You Hear + Half of What You See...

Close to a year ago, I stopped watching the news. By news I mean, MSNBC, CNN, Fox News, CNBC and local news. Why? There is nothing pertinent to learn or gather from watching the news. Pundits and "very serious people" use numbers, percentages and term du jour like "fiscal cliff", "uncertainty", debt/GDP and "austerity", to explain market economics. Well, all of it is nonsense.

  • Macroeconomics: The stock market does not reflect the real economy. Just because S&P is up/down 500 points on Monday, doesn't mean that your local dry cleaning business will boom or bust the next day. It baffles me when "very serious people" explain that the reason why the S&P went down was because, "Investors are worried about the ECB..."; "Investors are worried about the fiscal cliff..."; "Investors are worried about the political instability in the state of Florida". The stock market is purely behavioral. If an investor comes to work the day after his wife tells him she's filing for divorce, that will obviously affect his investment decisions. If you watch CNBC Squawk Box and make investment decisions STRICTLY because a VSP said so, then you need help. 
  • Microeconomics: Companies make selfish decisions. In other words, companies make decisions regardless of what they should do in theory. Current low interest rates means that Federal Reserve wants companies to take risks. In theory, companies should borrow at 3%, invest in fixed assets, R&D, hire new people, spend money on glitzy marketing campaigns and/or buy competitors. Nope. What companies did was refinance existing debt. That's it. Why? Well, why should they? Why take any risks like HIRING new people, if you don't need new hires? Why invest in a $300M factory, if you don't need it? Those decisions have nothing to do with "fiscal cliff" or "uncertainty". 
Companies are sitting on close to $3T in cash. Conceptually, they do not want to sit on cash because it's costing them money directly and indirectly. So what are they doing? Stock buybacks and dividends...Sheeeesh. 

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