When people focus on economy and finance, it is usually centered around statistics (Did X go up or down today?) or trends or economic patterns to see if/when is the "right" time to invest or pull out.
But what is often missed, particularly by those who don't follow finance regularly, is the psychological aspect. More specifically, the expectation dynamic. Often markets will go up or down not based on anything real or tangible, but simply because so-called 'experts' predicted this or that and based on how their needs were appeased, the market would bounce accordingly.
Today is very good example of this dynamic.
Stocks had fallen 4 straight business days but today they were up as high as +89. Why? Well because Fed chair Ben Bernanke was going to speak publicly on this past Friday's sobering statistics.
So why did it matter what his opinion was one way or another? Because every know-it-all cockroach investor was expecting that this would be the catalyst for QE 3, so they were hedging their bets in anticipation of this 'certainty' since Bernanke did the same thing last June and announced at the time QE 2.
So you had high-confident expectation plus large doses of Ego and Hubris... the investors would get their free money... they always get their money...
Except Bernanke did something else- for once he acted like a man and not a puppet. There was no mention of QE 3.. no mention of further stimulus.. no more free hundreds of billions for the cockroaches to play with.
And so the investors did what all spoiled little brats do when they don't get their way.. they took their 'toys' home... By the end of the afternoon's trading day, the market dramatically dropped about 100 points and finished -19 at 12,070.
Here's how one financial A-hole described the Bernanke speech: "The market is not buying what Bernanke is selling," said Keith Bliss, senior vice president at Cuttone & Co., a brokerage on the New York Stock Exchange floor. "He's not wowing the crowd."
Aww.. He's not wowing the crowd. Bernanke is Not bending over backward to appease us investors like he's supposed to. Wahhhhh Wahhhh..
Investors do not want a healthy, vibrant economy. That may be difficult to accept but it is true. Investors want profit. And if it is more profitable for a nation to be in the grips of a recession with government frantically giving money away in the hopes and prayers it will trickle down to help the masses then that's the side Investors are on.
The worse things are, the more governments will spend because that is all governments know how to do. And who benefits from artificially inflated stocks, bonds, treasuries and commodities the most? Investors and traders.
Everyone coddles and caters to the investor. Financial newspapers devote 100% focus to how to help investors get a leg up on the competition to enrich their portfolios. Nations and leaders set economic policy and fiscal day to day decisions based on how it will benefit the investor. Raise or lower interest rates? Weaken or strengthen a currency? Whatever is best for the investor. Why is it So important a nation like Greece or the US not default on its debt? Because it will hurt... wait for it.. the.. you guessed it.. Investor. They buy nation's debt- like the insects that live and thrive off decay.
Here's what to expect for June- a very choppy month for the markets as investors are torn between making profit and causing such a dramatic drop in the global markets that it forces Bernanke's hand to give them the money... really no different than taking someone hostage for a ransom, except investors take the economies of nations hostage.
Investors MUST make money like you and I MUST breathe and they will Do it, no matter the consequence or collateral damage to fulfilling that goal. I normally am very negative towards Bernanke but I hope he develops some courage to stay the course and not allow financial terrorists to force upon QE 3
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