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Two things:
1. there is no such thing as " the market". There are a lot of markets with a
lot of different players in all of those markets.
2. money is as fungible as energy. it cannot be destroyed, only converted.
The top players are out looking for opportunities, therefore they will move
from the best available opportunity (read market) to the next. Their goal is
to ultimately bring everyone else with them so as to provide the exit for
their positions. Since the value of any tradable is dictated by the
perception of the expectations of those players, when they perceive the
"bloom is off the rose" they will cover their positions and move on to the
next campaign, be that another market or the reverse position. Thus the
wealth is only destroyed for those who have put on wrong positions ( the last
man to buy) or held onto positions too long. It is very unfortunate that the
public does not understand that unrealized gains do not mean jack. Realized
appreciation in market value is like energy- it has to go somewhere.
Therefore the real question Don is asking is what are the true liquidity
flows and how can they be measured? Dennis is correct in saying " The total
value of a stock is its price times the number of shares. The number of
shares stays the same (usually.) " Changes will only occur if the company
buys back its stock, issues more stock or is acquired. Thus what I think Don
really wants to know is the level of total investment in equities versus the
amount that is held in cash, the changes in equity and cash investments, the
change in market capitalization, the growth in the money supply and the net
effect of all of this. Conceptually, this is helpful to me in understanding
how the game works. However, this is very difficult and cumbersome to
accomplish in real time, in a way that is useful to a trader (other than
someone with a Richard Dennis like time frame) Thus I think the best way to
answer Don is to look at multiple markets which are both related and
unrelated and interpret on-going valuation changes (price) from the
viewpoint of sector rotation. (i.e.: Equities to Bonds in flight to quality
reactions, movements among the major indexes, currency flows, harbingers of
inflation- the commodities markets and international markets) For example
Earl Adamy's work on the relationships between S&P close, reported earnings
and T-Bill rates are an excellent example. This told you clearly that your
global bias should have been short for awhile. Either way I perceive this
type of analysis as "fundamental information " which provides a good premise
for understanding the current market context. However, its relevance for
timing my trades next week is low on the priority scale.
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