The Social Stock Market, Perception or Reality? JUNE 1, 2011 BY ERIC RICE The stock market is nothing more than a legal casino. The stock market is the best place for long-term investments and social media is worthless and just for kids. These statements couldn’t possibly contradict each other more, yet they are some of the most common statements made about the stock market. We now have to deal with social media investor information from Facebook and Twitter and all the bookmarking sites to find good information. But which outlet is best to read and act on? Which one of them is more accurate? Continue reading in order to find out. If you have ever watched CNBC, you know economists are often on as guests and interviewed. Regardless of how the stock market is performing, some of these economists will be bullish and others will be bearish. This can lead to much confusion. Who is the average individual supposed to believe? It’s not possible for both parties to be correct in their assessments; therefore, you have to make a decision. However, looking into proprietary information from Twitter one can find good buys with the properly trained skill set. FOr instance a group from my alma mater using Twitter to predict the Dow Jones, 4 days in advance, with a 86% rate of accuracy. It is worht tsaking a look. All the breaking news around the worldis coming from Twitter or Facebook, so one must be there to make a play. There are two things to keep in mind in this type of situation. One, what is the time frame for the economist that is speaking? Are they basing their predictions on the next few days, the next couple of years, or somewhere in-between? Two, does this economist work for an investment firm? If so, he (or she) may have a vested interest. Whether right or wrong, it’s often the individual economists that are being the most honest with their beliefs. These people include Nouriel Roubini, Harry Dent Jr., Warren Buffet, and Joseph E. Stiglitz. If you take a few days to review all the interviews these four economists have given in the past year, you will have an excellent idea of what to expect in the future. There might be some different views, but you will have a better overall idea of what is really going on with the economy than you will by watching CNBC. Also, be sure to stay away from permabulls and permabears. The names listed above have changed their stances in the past based on the condition of the economy. Permabulls are bullish no matter what and permabears are always bearish. Two good examples are Jim Rogers and Jim Cramer. Jim Rogers has always been, and will always be, a believer in gold. It has gotten to the point where he has developed a reputation of stubbornness. Jim Cramer is a permabull. Whether this is because he now has his own show on CNBC is debatable. Is it possible that both the bulls and the bears are correct with their predictions? Yes. Let’s look at today’s economy, for example. Most bulls are bullish because of government stimulus, low interest rates, and blowout earnings due to extremely low expectations. These are all factors that will lead to an uptrend in the stock market. Since many of these people are traders, they will take advantage of stock market momentum. At the same time, most of them are also well aware that government stimulus, low interest rates, and blowout earnings, cannot last forever. In the meantime, they trade with the trend, which they are capable of doing due to well-developed trading strategies. Most investors are not aware of these advanced trading strategies, which often leads them to making poor decisions. They will see the market rise and get on board – right before it crashes. As far as the bears go, they know that the biggest financial catastrophe since The Great Depression isn’t solved in less than two years. Most of them agree that once government stimulus runs out, we will find ourselves in a deflationary environment. Interest rates will also have to go back up. And earnings expectations cannot remain extremely low forever. Combine that with what Bernanke himself considers an ‘unsustainable debt’ and an ‘unusually uncertain’ economic environment, and you have the ingredients for something Americans haven’t seen in nearly a century. The point here is that the bears know the market will be punished at some point within the next few years. In their view, what happens in the near term is irrelevant. But, other traders in the market take in all bits and pieces of this type of info and share it all day long. And the fact that the stock market is a gamble tell me that the ones trading should be heard the most. In a casino you have the choice to listen to a book some guy wrote on the game, the pit bosses that work for the casino or your gut and common knowledge along with a bipartisan view on the company that only cares about its ability to trade. The conclusion is that the stock market is based on both perception and reality. It is based on perception in the short term and reality over the long term. It now has a new place to find pinions and statements from the trading floors. Plan accordingly. By: Eric Rice
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