Conventional wisdom and experience taught us that the stock market pretty much reflects the health of the economy. Back in the halcyon days before globalization, it was the US economy that held sway. Now it is something of an uneasy blend of US, China, Japan, Brazil and Euroland. But this is all old news. It appears as though the tables have turned.
It now appears that the stock market is actually driving the economy. The indicator of economic vitality has somehow become the driver. These are strange times indeed.
Sentiment plays an ever increasing role in shaping the national psyche. And in the presence of 24 hours cable “opinion” stations there is no shortage of negativity to feed the beast of a “things are much worse than they seem” psyche. Add to this negativity the inexplicable cause of the “flash crash” of May 20th and the market takes on Frankenstein-ian dimension, except there is no clear Dr. Frankenstein in sight. Of one thing you can be sure, however, someone made a lot of money that day.
Add it all up and people get depressed, defensive and dogmatic. Most start spending less and a few start screaming more. Their “every year is an election year” political representatives are all too willing to bow to the desires of the vocal minority and sound bells of alarm that we are nearing economic Armageddon and abandoning reason. All the while, corporate earnings have been remarkably strong.
The message is that the economy has to be in abysmal shape, just look at the market. Yet this market is not our father’s market. It is not designed for investors, but for traders with platforms that execute billion dollar trades in tenths of a second. They make lots of money making bets, many of which are bets for the market to lose. A good dose of negative sentiment is great for their business and we are all too willing to unwittingly play along.
People have always been driven by the power of their thoughts. The more that their thoughts are planted in their heads by others with agendas, the more susceptible they are to being manipulated. At the end of the day, we are not suffering through a double dip recession. But we are experiencing a growing deficit of critical thinking.
Sad but true. I’ve heard a non-biased economist state that the stock market will be flatlined for the forseeable future – a series short term spikes and dips, but over time, not making any real wealth building growth.