Why the markets are Irrational and Inefficient

Markets are rational - sure they are - they have no choice because the participants in the market place have only one objective which is to maximize their profits. In the short run. that's it. How can you get any more rational than that? Look at the mayhem around us - no real news that changes our economic outlook and stocks have picked up - there have been no material changes in the performance expectations of the 30 companies and yet the Dow is up. But of course the markets are rational - they sense that they can make profits by just creating some hype and making stock prices move up until the players can make some money. And of course there is clear and sound judgement with all the buyers and sellers having all the information they need to make an informed decision. and the participants have only the long term interest of the companies in mind. And the companies are also indicating correct, honest and accurate information. Phew - asking a bit now are we? Let's go on.

And of course the markets know how to react swiftly, because they know how to judge information. Without fanfare or bs. Because, the folks analyzing the information are pure arm chair analysts who have never run a company or made a decision in their lives. and they know what it takes to run a company from having taken up a CFA or attended B School. That's why they can analyze the implications of decisions (or lackof them and make a "call"). What wonderful training for analyzing a company. and making judgement calls.

and dont forget - all this makes the markets efficient. - because frauds dont exist, conmen dont scheme up new ways to dupe, folks like Madoff dont exist, Speculators never drive the price of oil and everybody has market access. Markets can always determine how much liquidity is needed, where the folks at the margin are, whose money is being lost and who is making money - didnt you heare me - the markets take care of all that!

Then why the hell are we in this mess?