Another Example of the "Efficient Market" at Work?

If you still had any belief in an "efficient" market, Wednesday and Thursday ought to have cured you.

As I've written here in a prior post, there are two ways markets can be inefficient. I believe this week demonstrated both.

On Wednesday, some data was reported which showed a small rise in core inflation. This had even been commented on, a priori, by no less a person than Bernanke, as expected. So much for 'new information.' Never the less, it caused a market sell off.

If the information was not all that unexpected, how can one explain an "efficient" market dropping by 1.7% ? With individual stocks declining far more just on principle. Hardly very "efficient," eh?

Then, on Thursday, the continued confusion resulted in a flat market. Until Fed official Poole remarked that, at their next meeting, the Fed might raise rats half a point, or maybe, not at all.

This caused an immediate panic of selling. The market sold off to end the session roughly another .7% down.

Mind you, Poole only voiced what most pundits believed, and even Bernanke has said. That the Fed is looking at evolving data, and will make its decision at the appropriate time, on the relevant data at that time. Nothing new here.

No, this further drop was the result of a lot of mediocre, poorly-reasoning investors dumping shares on fear. Nothing more.

There's no sign yet that healthy global growth has lapsed. Any inflation is demand pull, not cost push. If global demand ebbs a little to cool the commodities price froth, so be it. That won't bring construction in Chindia to a standstill anytime soon.

Simply put, nothing "happened" this week to cause the equities of well-managed, profitable, growing large-cap US firms to drop in value by 10%. Temporary perception may be that these companies are now worth much less. But the available information on the environment, and the companies themselves, suggest otherwise.

So much, again, for "efficient" markets. How efficient can they be, if little, or no, information, can bring changes of the scale seen in just two days this week. And how "equal" can all the investors be in processing this "information," if such a stampeded is caused? And then reversed again today, by almost half a percentage point in the opposite direction?