Zbigniew Piekarski - the year in Summary
I have been asked to summarize the year that is just ending and, in my final article, to provide predictions for 2004.
What we have experienced since March of this year will go down in history as one of the greatest sucker rallies of all time. On the chart featuring the S&P 500, the most widely traded of all indexes, notice the letters "A" and "B".
One obvious conclusion is that they are far apart and "B" is some 400 odd points lower than "A". Yet the optimism prevailing at "B" is far higher than it was at "A" and, in fact, since records began. Individuals still live in the hope that what happened before "A" will be repeated.
This year started on a downer. The FT100 set a record of declining 11 days in succession prior to the bounce in March. The Jabberwockies began singing a new song. The bounce was due to an end in "geopolitical uncertainties" as the war to end all wars (again) began in earnest and finished off like a damp squib. The restoration of peace was officially declared in May, after which the body count started to rise. This was totally ignored as positive returns were once again appearing on the stock markets of the World.
Investor confidence was suddenly restored even though all of the major participants in the various scandals were still awaiting their just punishment and only one major accountancy firm ceased to exist (in name only).
Ever since Ronald Reagan enabled the financial institutions to develop and prosper by mismanaging the enforced savings of a generation of investors, the individual has been brainwashed into believing that the only sensible way to invest is by pooling his or her financial resources with others, and allowing a "professional investment manager" to manage the fund on a daily basis. These are termed "mutual funds" in the United States.
Yet the individual investor is still left responsible for the timing of his or her investment. Look at the chart of the S&P 500 again and the letter "A". The largest inflow in the history of the world was between January and April 2000 with February recording an inflow of $56 billion. 97 percent of that money is still invested although it is showing substantial losses. Hope springs eternal.
Pay particular attention to the table below. It illustrates the respective indexes on a monthly basis using the opening and closing prices only. The last column represents the net inflow of individual investors money as recorded by Comstock Partners Inc (who you will find on our webpage in the Friends section) and is in billions.
Notice the outflows after the markets decline and the positive inflows just as the market peaks. The same principle can be applied to all countries and all institutional investment managers who tend to be fully invested at market peaks as they are now. This is a clear illustration of what powers the market - social mood and crowd psychology.
Over the past few months, all the bad news has been totally ignored as the indexes have ploughed higher. Companies and countries with no earnings, only promises, led the way. Now good news is being ignored as the markets top for reality has not exceeded expectations. Soon bad news will be held responsible as the markets decline and by the time the Jabberwockies start to mention structural factors and the imbalances now prevailing it will be too late.
There are three stages to a bear market. The first is denial, the second is concern, and the third is fear and capitulation. We have finished the first two stages, but we have yet to enter the third and final stage whose depths of panic will be on par with the level of hysterical optimism that preceded it.
On the WSE: The banks will lead the index down as they have now started to market their products and convince old age pensioners to invest in the equity markets of Europe just as they have peaked and set up accounts in US dollars at a time when this currency is under severe pressure. In the UK the largest fines imposed by the Financial Service Authority for miss-selling financial products have been levied on the banks or their connected insurance companies. I wonder what will happen in Poland?
What we have experienced since March of this year will go down in history as one of the greatest sucker rallies of all time. On the chart featuring the S&P 500, the most widely traded of all indexes, notice the letters "A" and "B".
One obvious conclusion is that they are far apart and "B" is some 400 odd points lower than "A". Yet the optimism prevailing at "B" is far higher than it was at "A" and, in fact, since records began. Individuals still live in the hope that what happened before "A" will be repeated.
This year started on a downer. The FT100 set a record of declining 11 days in succession prior to the bounce in March. The Jabberwockies began singing a new song. The bounce was due to an end in "geopolitical uncertainties" as the war to end all wars (again) began in earnest and finished off like a damp squib. The restoration of peace was officially declared in May, after which the body count started to rise. This was totally ignored as positive returns were once again appearing on the stock markets of the World.
Investor confidence was suddenly restored even though all of the major participants in the various scandals were still awaiting their just punishment and only one major accountancy firm ceased to exist (in name only).
Ever since Ronald Reagan enabled the financial institutions to develop and prosper by mismanaging the enforced savings of a generation of investors, the individual has been brainwashed into believing that the only sensible way to invest is by pooling his or her financial resources with others, and allowing a "professional investment manager" to manage the fund on a daily basis. These are termed "mutual funds" in the United States.
Yet the individual investor is still left responsible for the timing of his or her investment. Look at the chart of the S&P 500 again and the letter "A". The largest inflow in the history of the world was between January and April 2000 with February recording an inflow of $56 billion. 97 percent of that money is still invested although it is showing substantial losses. Hope springs eternal.
Pay particular attention to the table below. It illustrates the respective indexes on a monthly basis using the opening and closing prices only. The last column represents the net inflow of individual investors money as recorded by Comstock Partners Inc (who you will find on our webpage in the Friends section) and is in billions.
Notice the outflows after the markets decline and the positive inflows just as the market peaks. The same principle can be applied to all countries and all institutional investment managers who tend to be fully invested at market peaks as they are now. This is a clear illustration of what powers the market - social mood and crowd psychology.
Over the past few months, all the bad news has been totally ignored as the indexes have ploughed higher. Companies and countries with no earnings, only promises, led the way. Now good news is being ignored as the markets top for reality has not exceeded expectations. Soon bad news will be held responsible as the markets decline and by the time the Jabberwockies start to mention structural factors and the imbalances now prevailing it will be too late.
There are three stages to a bear market. The first is denial, the second is concern, and the third is fear and capitulation. We have finished the first two stages, but we have yet to enter the third and final stage whose depths of panic will be on par with the level of hysterical optimism that preceded it.
On the WSE: The banks will lead the index down as they have now started to market their products and convince old age pensioners to invest in the equity markets of Europe just as they have peaked and set up accounts in US dollars at a time when this currency is under severe pressure. In the UK the largest fines imposed by the Financial Service Authority for miss-selling financial products have been levied on the banks or their connected insurance companies. I wonder what will happen in Poland?
