Pictures of a Stock Market Mania (Updated May 2004)

[On the Road]

Every couple of months for the last few years, stock analyst Alan Newman has published an updated view of a market which he believes is a greater bubble than the 1920's. And it's not done yet.

The visuals are extremely interesting. And he always adds new sections. The topics this version are:

Velocity
Wealth
Return of Trading Patterns Indicating a Bubble
Bullish Emotions
Insider Trading
Historical Average Gain

The site is print- and copy-protected, but here's the link:

http://www.cross-currents.net/mania.htm

[German-Lefty]

1. I think worring about Daily Traded Volume is silly.

Maybe someone else can come up with a good arguement for it, but I cann't see any. If we trade back and forth a share 1 time a day or 100 times a day, the only thing that matters is who has the share and how gave who how much money.

I have a way better explaination for why trading volumes are higher today. Electronic trading makes it way cheaper to trade so people are do it more.

I think things like speculative possitions open are way more important. You have to watch people writing derivatives to make sure their not writing checks they might not be able to cash.

[On the Road]

2. I Think the Point is That Short-Term Positions

are by nature speculative. If the holding period for QQQ's is so short that the entire base turns over 42 times a year, that's a speculative market. If a high-volume market is rising when valuations are already double the historical average, that's mania.

It is true that it's much easier to trade nowdays, and costs are lower. That also makes it easier to chase overvalued stocks and participate in a bubble. People are less likely to sit out until the market returns to historical norms.

[German-Lefty]

3. I wish I knew more about how exchanges work.

I've heard of some danger which I think he's alluding to. The stock exchange makes a brockerage put down valuable assets before it can take any possitions.

When someone buys stocks from me
* they have to be sure he can pay
* they have to make sure I have the stock (or can get it)
* they have to sit there with this risk until the deal is finally closed

I think the way it works is they have a margin of cash required to do transactions locked away at some place trusted by the exchange. He was saying in the 1920s it was 10%. He's arguing it should be increased.

I'm not too sure how the game is played to boost values of stocks and create artifical wealth. I think it has something to do with the fact that deals aren't closed immediatly, that you have a certain amount of time to show up with the cash. So if you trade really quickly you can make your money do multiple things at the same time.