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We've mentioned this theme in the past, but think it bears some
inspection again. Sometimes we talk about the market being
in "ignore" mode, and when it's in a mood like that, fundamental
economics get pushed to the side and they buy stocks. Does that make
sense? Heck no.
Years ago another financial rocket scientist came up with the idea
of the efficient market theory.
His idea was that stocks are always perfectly priced because they
are the sum of all the investors
knowledge at the moment and therefore where they are always
priced "just right". How totally insane
is that? Put some PHD on his soap box and they can sell stuff like
that to the public. It's
amazing.
Just the other day the LEI's came out and they were horrid. Except
for an inverted yield curve,
nothing else has so accurately predicted a recession than falling
LEIs. Yet when the last ones hit,
they ignored them completely, in fact we had a good day. That's
efficient? That makes sense? No.
The fact is that the market gets in "moods" where the big money
players want the stocks to run or to
fall, and when they are in one of those moods, nothing is going to
change the course of direction.
When the market is sour, they sell off good news, they sell off
increased outlooks and earnings.
When it's in "ignore mode" you can have Ford implode, GM implode,
LEI's fall, ISM's fall and the
market moves higher.
We'd rather know the mood of the market than the fundamentals any
day and stand firm on that belief. Some will say that's nuts, but
then again, we've been called that before, it doesn't bother us.
Just watch the markets and you'll see that knowing what the "feel"
is, is much more important than knowing the fundamentals for the
short term.
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