Irrational Markets

I know my friends and I have had a difficult time grasping what exactly is going on. Why is the market going down almost 800 points on day and then up 500 the next? What's going on?

Today, my MD gave the best analogy that I've heard for a while. Imagine that the market is like the housing market. If my house has been appraised at $1mm, it's usually pretty safe to assume that the rest of the houses in the neighborhood are also worth around $1mm. But say your neighbor decided that he/she had to move all of the sudden and puts the house on sale at $900k b/c he really wants to get rid of it. But no one buys it because it's so much harder to get a loan these days... and so your neighbor lowers it to $800k. Still no one buys because people still don't have $800k on hand... and so your neighbor still lowers the price to $700... and so on and so forth. Meanwhile you're freaking out b/c you think that your house is now worth close to nothing since your neighbor still can't sell their house... the demand for house is just not there, therefore the equilibrium price of your house is very low. However, just because you neighbor can't sell his house, that doesn't mean that your house isn't worth anything. Your house is still worth a lot, it's just that no one can really show or gauge how much because no one is buying your neighbor's house. And this is what the Bailout is for -- it's to re-instill a "normal price" for the market so that people can understand how much the market is actually worth. So the housing analogy applied to the stock market, people are trying to sell their stocks, but no one wants to buy these stocks, so shareholders are freaking out over not being able to sell their stocks and are now doing irrational things, leading to a volatile market. If I had the money, I'd totally buy a lot of stock before the bailout is passed by Congress and the stock prices go up...

Another example of the irrationality of the market: another MD was sharing a story of when he was at the bank, a lady asked to empty all of her accounts by way of cashier's checks instead of cash. wtf. lol

In other news, totally ML and I were being silly and named the tables in our query "bert" & "ernie" after the "Imagine That" song that's been stuck in my head all day.

I also ran into DD on the Path train today -- he was visiting a friend that lives at the Grove St stop... DD is the c/o '08 Mech E who is really tall and went out with my tiny little.