I’m not going to call anyone that is calling for a market crash a financial terrorist, but many that do make these calls are professionals that profit from disaster in markets. And, there are large swaths of people that never liked the rally from the beginning.
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But, it’s the former group that has ratcheted up its campaign of fear … and it’s working!
Case in point: a short blog issued a fatwa on 3D printer stocks, sending the entire sector tumbling.
Verruckt!!!
These stocks were already under pressure with all the high flying names that have made amazing moves this year … so they were soft targets. But, the free fall was even more spectacular, as stocks often come down a lot faster than they go up. I guess the personification of the decline is what engineers of the world’s tallest, fastest, and steepest water slide, the Verruckt (German for insane), had in mind.
I was actually looking for the group to pull back (we actually had taken profits already in XONE, DDD, SSYS and, the main target, VJET), but were hoping that it would be more orderly. Of course, that’s the essence of panicking–it’s never orderly.
One thing we know is buying begets buying, and selling at a certain point begets panic. The market has held its own nicely with all this bubble talk, but don’t think it’s not reverberating in the minds of investors. Many are spying the exits—even if they appear cool, calm, and collected on the outside. Of course, the momentum names make huge moves in short clips (hence the name), so panic happens here a lot sooner than it does in the broader market.
Still, this serves as a cautionary tale of what some are attempting to orchestrate in the broad market. There's a difference between a pullback (overdue) and a correction being pushed by a massive public relations campaign. I don’t think it’s going to work, partly because of news from corporate America.
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Buy Back Game
Nevertheless, there are legitimate concerns about the rally thus far, including the role of supply and demand. I received a great email yesterday on this topic, and I want to share it.
Charles -
I know that S&P eps are up, but how much of that is share buybacks, and how much of it is an absolute increase in total dollars earned? My suspicion is that it is significant – hence the measure of the growth of the economy is overstated. Also, how much of the earnings growth comes from overseas earnings? – Again, overstating the health and growth of the US economy?
Watch every day on Varney.
Neal
This is a legitimate point, as it is clear that companies that have announced significant stock buybacks have enjoyed amazing years. But, there are other factors, including the fact that any company that can afford to buy back 11.8% (the average) of its outstanding shares is pretty well fixed. Moreover, the kind of confidence needed to make such a commitment is also bullish.Companies aren't obligated to follow through on buyback announcements. Many observers consider it a waste of money that could be better used to reinvest in the business, or share the wealth through dividends. Yes, these buy backs not only reduce supply, which amplifies buying, but also create authentic wealth.
Our work focuses on other parts of the income statement, beginning with organic growth driven by demand and pricing power. Margin expansion is critical, along with several other aspects of the business. The earnings per share game is driven by expectations, which are a form of manipulation unto itself.
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Failure to CommunicateBetween Ben Bernanke's comments Tuesday night and the Fed statement yesterday, it is obvious the promise of transparency is tough to live up to when the market has become a spoiled brat. But, the Fed is going to taper in the spring, and they want it known that this action is not going to be the end of the world. Of course, at the rate they're going, many think there will be no coming back from a possible $4.0 trillion Fed balance sheet.
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