Well Norrin, I think your "what if" scenario is not "what if" at all. That is what is occurring.
I just don't believe markets move in reaction to any process that is rational. There is a sort of hidden presumption that traders are very savvy individuals who are intently and voraciously and very rapidly and processing a constant massive inflow of data, and making shrewd conclusions that then generate trading decisions.
I think that is one of those things that sound good in the telling, but in reality is completely laughable. One reason I think people believe this is because the financial press seems to push this idea, probably because if people really knew just how irrational market behavior really is, they would be far more hesitant to risk their money.
This is why I maintain that just about everything you need to know about any market is contained within the market itself. You don't have to read the Wall Street Journal or Barrons or anything, and you certainly don't have to expose yourself to the drivel coming out of CNBC or Yahoo Finance or Maria Bartaromo or analysts (who, by the way, do NOT work for you, and are notoriously wrong most of the time anyway!) or the Jim Cramers of the world or anything else. All that "information" is largely either not helpful or downright misleading. And, although there may be bits of useful data strewn about, distinguishing these occasional grains of gold from the mountain of sand with any degree of accuracy is all but hopeless and just cannot be done consistently by anybody anytime anyplace ever.
For example: I remember people predicting the market would tank in 2005, when hurricane Katrina hit New Orleans, because of the massive economic destruction that would (and in fact did) occur. Estimated damage was $81.2 billion.
Well, just the opposite happened. The markets had been trending steadily down for weeks as the hurricane was approaching land. But even before the winds died down, the market reversed, and started an impressive rally. Over the next few weeks QQQQ ran up about 4 or 5%, and 13% over the ensuing several months.
The moral of the story?
1. If you want to know about the weather, examine a weather report.
2. If you want to know about the market, examine the market.
3. Don't expect a weather report to give you useful information about the market.
4. Don't expect the market to give you useful information about the weather.
For those who would like to believe that the markets are driven by traders who are processing huge amounts of economic data with extreme speed and accuracy, and are then making logical, rational trading decisions based upon their conclusions, and that this behavior collectively constitutes market movement, consider these depictions of how markets are REALLY operating, and tell me if this picture matches the one I just described:
youtube.com
youtube.com
pbs.org |
