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The 5 biggest lies on Wall Street

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Feb. 22, 2013, 12:18 p.m. EST · CORRECTED
Commentary: These market myths are doing the rounds — again

The Dow popped back above 14,000 this week. The market’s been booming all year. Small cap stocks just hit a new all-time high, and Mom and Pop have been jumping back into the market.

Don’t mind me. I’m sitting in the back of the theater, throwing popcorn at the screen and shouting, “Boring! We’ve seen this already!” Maybe I’ve just been to too many movies.

Like this one.

Maybe the Dow will double from here. Maybe the good times will roll.

But don’t spin me. Here are five myths about the stock market that are doing the rounds, yet again. They just don’t seem to die.

Stocks will do well because U.S. corporations are in great shape.

Well, some of them have a lot of cash in the bank. So what? They have a lot of debt, too. According to the Federal Reserve, the total liabilities of U.S. nonfinancial companies just hit a new, all-time high of $13.9 trillion. That’s up 40% from a decade ago.

In other words, they owe about the same amount as the federal government. They’ve borrowed more than a trillion in the past three years alone.

What? You hadn’t heard that? Surprise.

We hear nothing but how deep in the hole Uncle Sam is. Big Business owes about the same. But ... nothing. Not a peep. Ah, if only debts didn’t count. Why, then, yes, corporations would be in great shape. So, too, would Subprime Suzy. Did you miss that movie?

OK, so corporate profits are booming. But that’s not a reason to invest more, least of all when those high profits are already factored into high stock prices. In fact, it’s a reason to be worried.

Profits can’t keep rising indefinitely as a share of the economy. When they go up, they come back down. According to the U.S. Commerce Department, corporations’ after-tax profits as a share of the economy have been at current levels only a few times in the recorded past. Like in 2006. And 1967. And 1929.

Ah, good times. Miller time!

Stocks will do well because the economy is recovering.

And so it is! But so what? That doesn’t mean the stock market will keep booming. From 1968 to 1982 the economy grew nearly 300%, but during that time, the stock market went nowhere. In real, after-tax dollars, investors lost money.

The economy has grown by two-thirds since 1999. How’s your stock portfolio done over that period? The Japanese economy has doubled since 1989, but the Nikkei is still down by three quarters. Studies by Elroy Dimson and colleagues at the London Business School found many cases around the world of capitalist economies where investors did poorly for decades even while the economy grew.

Economic growth does not always produce good investment returns. It’s a myth.

Stocks should earn 9% a year.

Hooey. By this logic, I should change my name to Michael Jordan: It would make me a great basketball player. Yes, from 1928 through 2011, U.S. stocks produced compound average returns of 9.2% a year, but you can’t just extrapolate that to the future.  See: Annual Returns on Stock, T.Bonds and T.Bills: 1928 - Current

First, those numbers include inflation. The returns in real, or constant dollars, was a much more modest 6%. Second, this is just an average. And it’s very misleading.

During all those years, as Stern’s data shows, the stock market only beat inflation by a decent margin during two boom periods — from 1949 to 1967 and from 1982 to 1999. Both were followed by vicious bear markets which wiped out the gains.

If you missed those two booms, your total gain from U.S. stocks over the other 54 years since 1928 came to a grand total of 7%, after inflation.

No, not 7% a year. Seven percent. Total.

A balanced portfolio of stocks and bonds will always make money.

This is more nonsense. I don’t want to reinvent the wheel, so I can direct you to an article I did about this last year. The elevator summary is that the so-called “foolproof” balanced portfolio of 60% stocks, 40% bonds has failed, massively, at least twice, just in the past 84 years — from 1937 through 1950, and from 1965 through 1982. It can fail again. That’s because there is nothing magical about a “balanced” portfolio of stocks and bonds. As people used to say, nothing is ever foolproof because fools are so damned inventive.

See: Why a ‘Balanced’ Portfolio May Not Work

A portfolio of bonds and stocks has only worked in the past when either the stocks were undervalued, or the bonds were undervalued, or both. That’s it.

In today’s gerrymandered market, the Federal Reserve has arranged for the 10-year Treasury bond to yield just 2%. That’s half a percentage point per year less than the central 10-year inflation forecast of the bond market. Bonds usually yield about 2% a year more than inflation. Today’s bonds are mathematically designed, with the precision of a Swiss watch, to lose half a percent of purchasing power every year.

These bonds cannot be undervalued. They are almost certainly wildly overvalued. The only circumstances in which these bonds will not lose you money, in real, inflation-adjusted terms, over the next 10 years is if a deflationary crash and depression cause your stocks to plummet.

There are billions of dollars in cash sitting “on the sidelines” waiting to come into this market.

Did you ever see John Carpenter’s “The Thing”? It was a horror flick set in Antarctica.

The monster was a shape-shifting alien that just wouldn’t die. Kurt Russell’s hero hacks it to pieces, but it keeps coming back.

When the creature’s severed head sprouts legs and it resumes its attack once again, Russell says, in disbelief: “You. Have. Got. To. Be. [Unprintable exclamation omitted]. Kidding.”

I know exactly how he feels. I feel the same way I hear someone talk about all the “cash on the sidelines” waiting to come in to the stock market and drive it higher.

You will hear this even from some sensible people. And, curiously, when others criticize the argument, they usually do so on minor technicalities, like that there really isn’t as much cash on the sidelines as people think.

No, no, no. The whole argument is wrong.

In a nutshell: Every time someone buys a stock, someone else sells a stock. If your grandma puts $10,000 into the stock market, someone takes $10,000 out of it.

If I spent $470 tomorrow buying one share of Apple, I’d have to buy it from someone. Before the transaction, I’d have $470 and he’d have one share of Apple. After the transaction, I’d have one share of Apple … and he’d have $470.

Amount that has come “into” the market? Zero.

If you don’t believe me, try it. 

Brett Arends is a MarketWatch columnist. Follow him on Twitter @BrettArends.

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Benefit of Cold Shower

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4 Reasons Why You Need To Take Cold Showers
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Negative ions in the air are natural antioxidants and make you feel relaxed (yin) as they heal you at a physical level through a process of natural alkalization. A cold shower is alkalizing because cooler temperatures increase your body`s pH. A drink from an unpolluted mountain spring will supply you with more antioxidant and alkaline power than a month of Vitamin C. A good out-breath will help accumulated acids to break down in salts, water and carbon dioxide, increasing your body`s alkalinity by reducing its acidity. No wonder meditation asks us to examine the breath. Correct breathing fosters alkalinity and we experience it as peace. Similarly, moderate exercise is alkaline; strenuous exercise is lactic acid-forming.

So when was the last time you had a cold? A year ago, few months ago or maybe yesterday? As crazy as it sounds, but there is a way to stay cold-resistent for your whole life. The key lies in strengthening your immune system. Vitamins is not the only solution nor the most reliable one, a far more cheap and better way that may help you to develop a rock-hard immune system is a cold shower.

It’s not a masochistic fetish, it’s a healthy lifestyle. Short cold showers in the morning have immense benefits on the chemistry of your body.

• Cold water helps you to produce more glutathione as well as other enzyms that help you reduce reactive oxygen (including oxygen ions, free radicals and peroxides both organinc and inorganic). As a result your natural decay of organic material is reduced. You look younger.
• Low levels of reactive oxygen mean low risk of cancer.
• Regular cold showers make you half as likely to get any chest infection than people who always stick to warm showers.
• Cold showers bring more blood to remote body parts and provide a better blood circulation. As a result you have a reduced blood pressure in your organs and all the toxins are literally flushed out of your system.
• Your mucous membranes become stronger, that gives you resistence to fever, allergies, colds, coughs, etc.
• Most important: your nervous system becomes much stronger. You can deal better with stress, you are calm, you can relax better, you are simply cool.

No coffee in the world can wake you up better than an ice cold shower. It takes some self-discipline to go through it, though. First few weeks are the worst, but you get used to it later. Bodytweaking’s philosophy is that you have to suffer, if you want to look good, be strong and healthy. It doesn’t matter if it’s a workout, a cold shower or a thesis you have to write for college: everything takes some effort, courage, determination and fortitude. That’s the difference between a real bodytweaker and the dregs of humanity.

Note: A real bodytweaker takes a cold shower at least 5 times a week.

More reasons... 

4 Reasons Why You Need To Take Cold Showers!

A friend of mine is 45 years old, has no gray hair, and very good skin for her age. I wanted to find out if there was anything in her routine that could have been a reason for such youthful looks for her age (all without any surgery by the way!). Leaving genetics out of the equation for a moment, the one interesting thing that popped up was the fact that she takes a cold shower every morning. So I did a little research about the subject and found 4 main benefits that you gain by taking cold showers.

Now when I say cold shower, I want to clarify exactly what I mean by that. Taking a full cold shower, meaning no hot or warm or lukewarm water at all, is borderline torture! Especially in the cold winter months (I am from Montreal, and it is VERY cold here!). Besides, there are many benefits to taking a warm shower, the primary one being that it feels really good! But seriously, what I mean in this context, is the practice of starting with a warm shower, and ending the last few minutes with cool to cold water. Here are the benefits that you gain by incorporating a cold shower into your shower routine:

1- Better Circulation
Warm water makes the blood rush to your skin, and cool water makes the blood rush to your organs. This switching between hot and cold triggers better circulation in your blood by forcing the blood to move. The ideal practice would be to switch numerous times between hot and cold water, but merely ending the shower with cold water does help with circulation. Why should you worry about having good circulation? Well, it prevents such problems as hypertension, hardening of the arteries, and the appearance of varicose veins. Good circulation improves the performance of your system and thus help looking and feeling better.

2- Better looking skin
When you shower with warm water, it opens up your pores. Then you wash and this cleans up your pores. That’s all good. When you end, it would be best to close your pores and cold water does just that. It’s good to close your pores after you are all cleaned up because it will prevent the pores from being easily clogged by dirt and oil, which causes skin imperfections such as acne for example. Another benefit is that cold water makes your blood vessels constrict which reduces swelling and the appearance of dark circles under your eyes (where skin is at its thinnest). This provides you with a young, healthy glow.

3- Healthier hair
Cold water makes your hair look healthier and shinier. As a matter of fact, cool air makes your hair shinier too (that’s why there is a cool air button on your hair dryer). What the cold water does is that it closes the cuticle which makes the hair stronger and prevents dirt from easily accumulating within your scalp. Basically, the same principle with how it closes the pores of your skin as mentioned above. Stronger hair, of course, prevents hair from being easily pulled out when you are combing, and it helps in slowing down overall hair loss.

4- Mental benefits
There are plenty of mental benefits to ending your shower with cold water. The ancient samurai warriors used to pour buckets of cold river water on their heads every morning in a Shinto practice called Misogi. This was a purification ritual on a spiritual level. They believe that it cleansed their spirit and helped start a new day & new adventure fresh. Cold water obviously helps waking you up, which is what you want in the morning. Also, it energizes you and invigorates your entire being with the essence of life. Give it a try, you will definitely feel more alive! It can also lift you up if you are feeling a little down or unmotivated.

Ending your shower with cold water clearly has its advantages. Many benefits to cold showers, as you can see. I know this is something that can be very difficult for many people to do. The key is to not torture yourself. Go about it gradually. Start with a level of cold you can deal with, and slowly make it colder after each shower. As long as you get your feet wet (no pun intended!), and begin adding this routine at the end of your showers, you will be on your way to making a habit out of it and enjoy the benefits that this practice can bring you. Who knows, maybe you can avoid gray hair altogether like my friend! Maybe the fountain of youth is made up of very cold water?! 

You are going to take a cold shower tomorrow morning. I am going to take one, too.

Cost: 0$ for a cold shower. You actually save energy costs.

Billions in Hidden Riches for Family of Chinese Leader

Interesting article by "The New York Times" - David Barboza.

He has been a correspondent for The New York Times based in Shanghai, China since November 2004. He writes primarily for the Business section but also writes often for the culture section about art, film, television and dance in China.

David graduated from Boston University with a bachelor's degree in history and attended Yale University Graduate School. He was a freelance writer and a research assistant for The New York Times before being hired in 1997 as a staff writer. For five years, he was the Midwest business correspondent based in Chicago. He also covered the Enron scandal for The Times and was part of a team that was named a finalist for a Pulitzer Prize in 2002. In 2005, he was one of five Times reporters awarded the Gerald Loeb Award for Deadline Writing about Lenovo's acquisition of I.B.M.'s personal computer business. He lives in Shanghai with his wife, Lynn Zhang.

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