O.K. I’ll admit it. I thought the stock market couldn’t get any crazier. I was wrong.
Forget massively skewed valuations. Forget companies like AIG whose stock has been soaring for no discernible reason. Forget all those terrible earnings reports greeted with joy by traders because they beat analyst expectations, and because of the rosy predictions about the future from the CEOs who brought in these awful results. For a true measure of current market craziness, look to the boom in day trading of zombie stocks
Zombie stocks have no value because they are shares of companies that no longer exist, companies like Lehman. Zombie stocks only continue to exist because a judge hasn’t gotten around to playing market coroner and declaring them officially dead.
Day traders, a group many of us mistakenly thought were gone forever in the wake of last year’s market meltdown, are back. These people are pure speculators with absolutely no interest in the intrinsic worth or worthlessness of shares they buy and sell at lightening speeds.
Day traders are chat room cultists. They frequent web sites looking for a rumor (ore creating one) that might trigger a temporary stampede — a stampede that’s always brief and ephemeral because its has no basis in actual fact or real worth. The game in these lemming runs is to get an early jump on a rumor and bail before other lemmings go over the cliff. If you’re soon enough in and fast enough out, the profits can be great. If not, well, its back to the night shift at Cosco.
Day traders playing the zombie stock game aren’t an aberration in today’s market. The are simply the most obviously wacky and exaggerated manifestation of a huge bubble. The similarities between today’s stock market surge, and the market surge of 1930 when stocks temporarily got back many of their losses after the 1929 crash, are spooky. The stock surge of 1930 didn’t last because the overall economy it was supposed to mirror didn’t really recover. Remind you of anything?
I’m not angry about a market that has risen more than 50 percent since March. As the old saying goes, I don’t have a dog in this fight. I no longer play the market. I’m just plain scared. And not just about zombies, either.