The news today that the Nasdaq closed above 3,000 has me a little spooked. They are saying that this index of tech and other growth stocks has closed at the highest level since December 11, 2000. That was just before the tech bubble burst.
Now no one is saying that another tech bubble has formed but it has taken us almost twelve years to get back to even.
Smart People On Wall Street
What could be driving stocks that high?
One culprit could be the excessively low returns being offered for money market accounts and Certificate of Deposits. With these cash storage devices paying 1% or less interest while the real inflation rate (what you actually pay for food, clothing, fuel, and housing) is probably something closer to 6% you lose 5% a year by just parking your cash.
So… Every day many people are dipping their toes into the stock market using mutual funds with names like “The Super Safe Growth Generator” and “Can’t Lose Undervalued Stock”. When they do this smart people on Wall Street just plow their cash into the same stocks we have seen going up for the last few months.
Like any bubble this party may be over soon. Just like last time.
Stocks can only;y go up for so long. Remember: You heard it here first.
A few days ago I shared my thoughts on DirecTV customer service. I was not happy and thought the company was probably headed down the toilet.
Well… Since then Warren Buffet, the legendary investor, has announced that he is increasing his stake in DirecTV by five times to $1 Billion. And… The company has released some incredible earnings results.
The company posted a 16% jump in fourth quarter profits and is adding to its number of subscribers while cable operators are losing subscribers.
Sure… The company can offer some great deals to lure people away from their current cable company but can they hold onto the customers once those great rates expire and people realize how much the service really costs. And that doesn’t count the extras they might tack onto your bill and how channels you thought you were paying for disappear overnight.
I stand by my opinion about DirecTV.
Between their questionable business practices and pressure from other entertainment choices this company will probably start to feel some pain in a few years if not sooner.
So why did Warren Buffet increase his holding in DirecTV?
Even the best baseball player has a bad day. As hundreds of thousands of DirecTV subscribers realize what they are really paying they will call their cable company and hop back over there.
Articles have been flying around about the stock market’s January Effect.January Effect. People have attached this “January Effect” term to the idea that if the first few days, weeks and month of the year are good for the market then the rest of the year will be be good.
Well… I have been watching this January Effect from the shadows for a while and I have a few ideas on what it really is about… Actually what happens is the Stock Market’s volume drops in the last two weeks of December and right around that time the investors who are in the market seem to be doing tax loss selling.
And… Come January more money starts to flow into the market from year-end bonuses and new retirement fund deposits.
So what does this all mean?
If you didn’t make your moves to buy up some solid stocks in December it might have been too late. The only thing for sure in the stock market is that you can just end up with a lot of cold water even if you are careful.