“Davidson” submits:
You can select your own title, but the result is the same.
1) “Fear Melts Away!” 2) “Economic Collapse Avoided!” 3) “Intractable Problems Find Solutions!” 4) Missed the Big One!
Suddenly in the past few days as if by some magical process the fear of the past 4mos has largely melted away. The relentless chorus line of individuals forecasting economic disaster broadcast every few minutes on CNBC has largely ended. Now it appears that the talk is about which solution rather than no possible solution! Like the global warming fears of several years ago that some minor change in additional human activity could tip us into global disaster from which the human race could never survive, Greece became the miniscule tipping point for global financial disaster and Slovakia became the tipping point for global financial solvency. Never has so much been heaped on so miniscule a series of events which were so inconsequential!
Still, ALL the economic data continues to trend upwards, individuals continue to be hired, retail sales and durable goods orders continue to expand and global trade continues to grow with not so much as a fear related twitch.
A phrase comes to mind, “It’s the economy, stupid”, which was made famous by James Carville as candidate Clinton successfully campaigned against President George H.W. Bush. The economy this past 4mos has never stopped working forward, but it seemed that most analysts seemed to stop paying attention to this. It became quite clear that if one wanted to get one’s self on CNBC one had to pronounce a more dire prognostication than the last person. The dire forecasts seemed to pour forth in an endless cascade with some individuals carrying such particularly pointed assertions that they were able to achieve “60 Minutes” status.
Society has a history of “Bubbles”. We seem to be able recognize rapid market rises with overly optimistic expectations as normal “Bubble” behavior, but we do not seem to recognize its opposite, i.e. excess pessimism, in the same light. We seem quite ready to accept overly negative forecasts as having much more meaning and truth than not when in fact it is simply a “Bubble of Pessimism”. (A downside “Bubble” as opposed to an upside “Bubble” neither of which are ever justified!)
The question which has been asked is “How did I know the difference between the economic trend and market psychology?” The answer is quite simple, “It is the economy which drives the market and eventually drives consumer sentiment and not the other way around. If you learn to read the economic indicators, then you can tell the difference between the economic trend and market psychology.”
Now that this period of enormous pessimism is passing we should reflect on this as a valuable investment lesson to enhance future investment returns.