(Siegel will receive a one-time stock winnings of 30% in return for helping the company “redeem” some of its stock).
Cummins Air Power, which produces air tankers, power planes and trains, has also seen a sharp upswing in its share price. (Cummins shares have risen by about 50% since August 2014. More: Why the Stock Market Is Losing Its Grip on Investors).
This chart was compiled by the company’s analysts, and we would not be surprised to see this pattern of up and down swings continue into 2016.
Another big upswing in 2014, for instance.
Anup Ambani may be a little old-fashioned about “wealth creation,” but who can argue with some of the benefits it affords? He’s the largest individual investor in India and the largest non-India-resident investor in the United States, meaning his wealth isn’t just the result of his investments in the two countries. So the question is simply: is he, personally, a greater benefactor than you or I? Who knows. It seems unlikely.
The other way the markets could do some damage in 2016, in my experience, is by oversupplying the stocks with “high potential” companies, as it often happens in the stock market.
This is what happened in 2008 when the market was in free fall, after the Lehman Brothers debacle . When investors took equity in those companies, they were surprised by how high their prices rose as news out of the recession made investors believe there were future prospects for the companies. They bought and sold those stocks at high levels without any understanding of the real economic situations. The market was even more aggressive in 2008 when the real crisis, a depression , flared up again, and the stock markets had a similar over-supply problem. I will not discuss why all such speculative over-pricing happened back then, but it’s a matter of life and death in the stock market. Just as in 2008, we are seeing these big over-prices in the market right now, and I have no doubt that you will see some of that in this discussion.
What is perhaps even more worrisome is that the market has been buying more and more highly speculative stocks whose management cannot be deemed competent and who are in the process of being liquidated by big investors. There are a number of reasons for this, but the biggest one will be the rise of “big data.” These big data firms are very sophisticated at predicting the future, and they often out-price their competitors by the time stocks get to the “ticker” stage. The technology companies are the greatest beneficiaries of this new knowledge technology, as they are able to analyze the data that these big data firms feed them, which has the effect of significantly improving the stock market even before you realize the significance of the new technology. I can imagine a situation in which this huge stock market advantage is converted into a massive over-supply to the under-utilized companies that can actually make the market under-weight under-profitable companies in the short run . There was a report that some big companies whose management are well-meaning folks would be interested in acquiring some of the under-utilized and highly speculative real assets that are currently being “dumped” on the market. They could have the potential not only to make the market work for the big winners, but also to get a lot of returns for their initial investment. This kind of speculative over-pricing might also cause a correction in the stock markets later of the same size in 2016. Finally, the market over-supply problem is not just limited to the stock market, however. We already know that the housing market had a huge housing bubble of 2007-2008. In fact the S&P 500’s bubble was larger than this one. In that bubble the market was able to sell a lot of housing-related products at prices that turned out to be much higher than the average. After all, housing-related products are typically more expensive than other assets. So it was an attractive opportunity for investors to sell it at a higher market price than the S&P 500 was actually trading for, especially as the bubble burst. Some speculate that the housing bubble may trigger another recession too. But in case of this kind of over-supply problems, a correction of that size may be less likely to happen. As it happens, the housing market has been very hot and has been improving very rapidly, the way in which the stock market may be working.
Why do you think the markets over-pried? Could there be another reason?
One of my students recently got a very interesting question from a professor in his Economics class. The student said he and his colleagues were writing his college thesis, and they needed to get a little help from the market. And the professor said, “If