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On Stock Markets and Headless Poultry


My grandparents used to raise chickens—both for the eggs and the meat. What struck me as a child was, when the axe fell and the chicken lost its head...

somehow the message never immediately got through to its body. Some chickens would actually fly a little ways, others would flop around.

I recall one headless chicken that was heading my direction. When I moved to the left, it turned left. I then ran to the right but it started flopping toward the right. As a little guy at the time, I swear that thing was after me! 

Sometimes the stock market behaves like headless poultry—and that was certainly the case in 2011 for the US S&P500 stock index.

S&P500 (excluding dividends, rounded)

12/31/2010 1258

2011 high 1371

2011 low 1075

12/31/2011 1258

Looking only at the start and finish, one could be forgiven for thinking that with a 0% gain/loss it must have been a boring year, right? But look at the high and low—and even that doesn’t tell the full story of the market’s volatility. During 2011, the S&P500 traveled an amazing total of 3240 points, jerking and flopping back and forth. 

Euro leaders would hold their umpteenth summit and announce that they agree to agree about something at a future date…maybe…if the stars align…and the stock market would take off flying like that headless chicken. Then reality would set in on the lurking economic icebergs and unsustainable debt and the stock market would flop right back down.

Back and forth, back and forth, with extreme daily and weekly swings. Even seasoned traders were having an impossible go of it. The fundamentals and technicals were tossed out the window and stock markets were instead driven by leaks, lies, and the latest news headlines. 

What’s in store for 2012? Nobody knows, of course. But virtually none of the substantive economic problems have gone away. The Euro zone is still a mess. China’s economy is slowing and their real estate values have been crashing. Slowing demand for commodities from China affects Australia, Brazil, and Canada, among others. With their economic problems and demographic challenges, I think John Mauldin has it right that “Japan is a bug in search of a windshield.” And our own country appears to be on the verge of recession right at the cusp of an election year.

We all would probably do well to prepare for another year of stock markets behaving like headless poultry.