Friday, December 19, 2014

How the markets are like Kohl's Stores...

When I first started hearing about Kohl's stores from our retail analyst it was in the late 1990's and they were still primarily a midwest retail chain.

I vividly remember the first description of the stores as something along the lines of "it's like Macy's but without name brands".  I remember thinking that was a strange concept, but whatever, to each his own.

Yesterday I was discussing the Kohl's concept with my better half and admitted that it is just one of those successes that I have to admit I'll never understand.  There is always a steady flow of customers marching through their doors to buy a $12 shirt that was marked up to $90, so they could put it on the 70% OFF rack (now $27) and you can use your extra 30% off coupon to yield a final price of $18.90.
In the end, you end up paying 50% more than what the shirt is worth, but they tell you "You SAVED $71,10 on this shirt!!!" and for some reason this strategy continues to work. 

So what does this have to do with the markets?

I think we're seeing the last glimmers of human influence over the markets vaporize in front of us.  In 15 or 20 years, we may look back on this time and wonder why we didn't change the markets when we had a chance.

Yesterday, all I heard during the day was "well, oil has stabilized and that has caused a massive stock market rally." The only problem was oil was falling throughout the afternoon and set new 5 1/2 year lows by the close.

It doesn't matter, though.  Once the computers take hold of the market they no longer needed a "reason" to buy, simply having stocks be higher was reason to buy more.  At the end of the day a crazy buy program bought everything in sight and took stocks back to within a whisper of all-time highs.  This won't cause any Congressional inquiries when stocks are going up, but these program trades can work in the opposite direction as well.  Yesterday's panic buying was so rapid and lacked any rational explanation so it left all of the humans standing on the sideline.  When the markets finally unravel, the declines will be so rapid that no one will have a chance to react.

So, after dealing with the markets for nearly 20 years I think I've come to the realization that these are no longer markets.  They are like Kohl's - maybe I'll just never understand them :)


** Oil has bounced again this morning, so if the pattern holds, this means higher stocks (maybe all-time highs again?) and a late day sell-off in oil that no one will notice.  However, today is an option expiration day which means it can be very volatile.

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