WHY IS THE MARKET DOWN? WHERE IS THE MARKET GOING? WISE GUY ANSWERS TO UBIQUITOUS, YET POINTLESS, QUESTIONS

9/23/14

A guest on yesterday’s edition of WBBM’S Noon Business Hour (“NBH,” a program I HIGHLY recommend…noon to 1 PM Chicago time on AM 780) was asked to opine on the reasons for the market’s mild doldrums of late.  Since I was cutting the lawn at the time, I didn’t catch the guest’s name and am unable to quote his exact response.  But, paraphrasing, he offered that the market was due for at least a mild downturn or breather after reaching record highs.

This explanation seems reasonable and is certainly as good as any other offered by the “experts” in the field of market prognostication.   Those of us who believe, with more than the usual degree of conviction, in the efficiency of markets, however, believe not only in the inability of anyone to consistently call the direction of markets.   We also believe that it is nearly impossible for anyone to explain why the market has done what it has done; who knows what future events the markets were or is discounting with their usual remarkable efficiency?  People generally stink at prospectively calling the markets; they also generally stink at even retroactively calling the markets.  Such musings as offered by the NBH’s guest, and the guests on every markets oriented show, may be interesting and fun but they are, ultimately, quite useless.  See 8/29/14’s BULLS, BEARS, AND BRAINS:   THE RELENTLESS PURSUIT OF THE FOOL’S ERRAND OF CALLING THE MARKETS for further illumination on this topic.

Given our fervent belief in the efficiency of markets, those who think like yours truly might respond to a question regarding why the market did what it did with a wise guy answer like

“The market was down because there were more sellers than buyers,”

which is about as illuminating as

“The bond market went down because interest rates went up,”

but is nevertheless at least as insightful as anything anybody else might pull out of a conveniently situated orifice.

But even the glib and wisenheimer answer

“The market was down because there were more sellers than buyers”

is wrong because there cannot be more sellers than buyers; clearly, even in this age of such financial sophistication as naked shorts (which, for those of you not as familiar with the markets as other readers, are not as interesting as they sound), for every seller, there must be a buyer.  A better, but no less smart-butted answer, would be

“The market was down because there were more sellers than buyers AT THE PRICES THAT PREVAILED BEFORE THE MARKET FELL.”

Right again, Mr. Quinn.  Thank you.