Smart vs. Dumb Money

[tsptalk]

Per www.sentimentrader.com (http://www.sentimentrader.com):

... large commercial hedgers (aka the "smart money") moved to yet another record net long position of $29 billion, while small spectators (the "dumb money") moved down to $11 billion, one of their smallest net long positions in years.

[alevin]

Per www.sentimentrader.com (http://www.sentimentrader.com):

... large commercial hedgers (aka the "smart money") moved to yet another record net long position of $29 billion, while small spectators (the "dumb money") moved down to $11 billion, one of their smallest net long positions in years.

I saw this article called ARE INVESTORS UNDERINVESTED? by Jeff Goepfert at Minyanville this morning after I finally completely bailed to the sidelines, been thinking about it off and on all day. Sorry I'm not sure how to post the website address as an active link, and I don't know what I'm doing with the upload feature either. I'm an ultra newbie at web page stuff.

Anyway he suggests the ratio between $ in money market vs. $ in the market vs same in 2000 suggests market is not oversold and that maybe either things aren't as bad as they seem to be going or a lot of people haven't freaked out badly enough yet. After reading, I got to wondering if this balance is the smart money/dumb money divide, and whether the greater amount not on the sidelines means there is still a lot of dumb money yet to bail out, or whether this is all the smart money sticking it out and/or already come back into the market, or a mixture on both sides? Comments anyone? I'm sure there must be a variety of opinion.

[tsptalk]

Sorry I'm not sure how to post the website address as an active link, and I don't know what I'm doing with the upload feature either. I'm an ultra newbie at web page stuff.
http://www.minyanville.com/articles/index/a/15506

[Bullitt]

Interesting article. The Mutual Fund Cash levels have been bearish for a few years now. This link is almost 2 years old, but it gives a longer time frame than Minyanville.

http://bigpicture.typepad.com/comments/2006/08/mutual_funds_ca.html

I wonder if the popularity of automatic asset builders (a monthly fixed contribution amount), Index Funds and Money Market funds have anything to do with the disparity. The amount of investors going at it alone is higher now than it was from 1960-1980 due to the advent of the internet. Also, what about Hedge Funds? They control 2 trillion US dollars in the world market place.

Looks like it may be an indicator of market tops, but don't hold your breath.

[budnipper1]

Can Their Wish Be the Market’s Command?
By BEN STEIN
Published: January 27, 2008

The losses in the stock market since the highs of October 2007 are about 14 percent. This predicts — very roughly — a fall in corporate profits of roughly 14 percent. Yet there has never been a decline of quite that size for even one year in the postwar United States, and never more than two years of declining profits before they regained their previous peak.

In other words, traders are sending stocks down by a fantastically larger amount than is warranted by a recession or the losses in subprime. How and why does it happen? As someone said in the movie: “Forget it, Jake. It’s Chinatown.” It’s just Chinatown in trader-land, where money is made and there is no perspective.

So when you see the market gyrating wildly downward and hear some pundit saying it’s because of this or that data or this paradigm or that ratio, remember trader realism. The traders move the market any way they want, any way they think they can make money, and then they whisper a reason to journalists later in the day. Then the journalists print it or say it on television, and the amateurs believe it.
...And the traders snicker.

I just thought this article was interesting. Another writer said this was Stein's reaction to place blame on his recent losses in the market. I personally don't think much of Stein's opinions any more than the rest of the so-called market "Gurus".

http://www.nytimes.com/2008/01/27/business/27every.html?pagewanted=1&_r=1&sq=Ben%20STein&st=nyt&scp=1 (http://www.nytimes.com/2008/01/27/business/27every.html?pagewanted=1&_r=1&sq=Ben%20STein&st=nyt&scp=1)

[hessian]

Not sure where this best fits...

A tidbit of wisdom, perhaps relevant for many of us here, and for today's market! (see link below for more, or run a Google on Keynes/Keynesian):

Keynesian Insight: 72 years ago Keynes observed that speculation had come to dominate true investing. In today's hyper-active trading environment, Keynes' lament rings all the more true. Finding a balance between focusing on long-term investing and capitalizing on short-term opportunities -- while controlling emotions -- is vital to successful investing.
http://safehaven.com/article-9467.htm
VR

[james_smith]

The theories about smart / dumb money have been around forever. Has anyone made any money trading them?

[tsptalk]

I don't trade stictly based on sentiment, but I find it the most reliable of all groups of indicators. After all, fear and greed are what move markets.

[Frixxxx]

I don't trade stictly based on sentiment, but I find it the most reliable of all groups of indicators. After all, fear and greed are what move markets.
My Main Fear is that I'm not GREEDY ENUFF!!!!:laugh:

[squalebear]

Crazy Times ! Before the Credit Crisis, anything above 50 or 60 in the VIX
was considered Bullish (if I remember correctly). We now have a new way
of looking at fear. Its called "The Sky's the Limit Index". We'll remember
this year for many more to come. :worried:

[Bullitt]

The theories about smart / dumb money have been around forever. Has anyone made any money trading them?

Yes, but the game has changed as the leverage which has flooded the market in the past 20+ years is slip sliding away.

Sentiment indicators have been pretty useless throughout the entire 2008 but as far as I'm concerned, 1 year is the short run. I'll continue to stick with extreme sentiment readings as my top indicator of market conditions.