A Message from Louis B. Mendelsohn - President and CEO of Market Technologies

Get Past Daily Drumbeat of News

Nothing changes as much as it remains the same. This maxim points to the now daily life of the market. True, the numbers go up and down, but the catalyst for the movement seems to change yet remain the same. These days, Europe drives the market, and it seems it will be so for the near and long term. Understandably, Europe is of great concern to the market. The fiscal and economic problems on the economic union are huge and the resolutions lie in the ability of the politicians to define and carry out a long-term plan that will lead the EU out of its crisis. Although political progress is evident, the political challenges ahead are difficult.

Currently, the political landscape is changing, which is one reason the market is so concerned with the daily machinations of Europe. Earlier this year, the market was soothed by the power of Angela Merkel and Nicolas Sarkozy as they pushed through the new EU accord, which committed all the countries to a strong fiscal compact, one that dictated parameters for debt and deficits. Greece signed on, as did Ireland, Portugal, Spain, and Italy. Each of the countries implemented the austerity demanded from the new EU accord, and each is now suffering economic recession and popular revolt against the fiscal mandates.

The immediate consequence of the popular revolt is recent elections and coming elections that have shifted and may continue the shift from harsh austerity to austerity mixed with economic stimulation. The election of Francois Hollande in France is the most powerful agent of this shift, but the lesser elections in Greece and Ireland are playing their part as well. Other minor countries such as the Netherlands are also moving in this direction. Britain, although not a member of the new EU accord, is pitching in with 70% of Britons supporting a move to lessen the austerity and increase economic stimulation in that country.

All of this of course lessens confidence on the business, consumer, and investor level, which then contributes to a weaker EU economy and rising costs to borrow money in the countries with the greatest fiscal problems. All of this is not new. The EU fiscal crisis has been going on now in one form or another since March of 2009, so, really, nothing changes as much as it remains the same, at least not there.

Yet since that time back in March 2009, the market has risen considerably, more than doubled in fact. This begs the question - although it seems the market is concerned with Europe, is it really? All evidence points to concern. The media says the market is concerned with Europe, and the volatility associated with the events in Europe clearly points to concern, yet how does one explain the three-year rising trend in the market, all the while Europe has been in and out of the news, all the while seeming to be just on the edge of an EU and euro collapse?

One potential answer is daily news moves the market in the short term, but in the long term, the market actually pays attention to and invests in economic fundamentals. Although moving slowly and in fits and starts, the global economic fundamentals for the last three years have been moving forward, despite the fiscal crisis in Europe, and despite the economic malaise associated with the crisis. True, China has slowed, but that seems temporary, as the Chinese government is now moving swiftly to stimulate its slowing economy. The market sees this and thus pushes forward. Moreover, above and beyond the economic fundamentals of global economies, the market cares about one thing above all others - corporate profits. The result of even haphazard economic growth of the last three years has been a steady stream of corporate profits for the last three years.

So what does this tell us as traders and investors? Simply, to trade and invest well, one has to understand that the daily drumbeat of news does not a market make. One has to look a bit wider than the daily news, if for no other reason than the fact that the news is a lagging indicator. One also has to look a bit wider than the economic data coming out each week, each month, each quarter. These too are lagging indicators.

No, to trade and invest well one needs many things, but two are fundamentally important. The first is the understanding that the most important thing to the market, ultimately, is economic growth, which is reflected in corporate profits. This understanding allows one to move away from the effect of daily news and to deal with the market on a more practical and relevant plane. The second is technologically sophisticated software that captures the relationships between markets as they move through their economic flow and from this creates leading indicators to predict near-term market movement. VantagePoint Intermarket Analysis is the sophisticated software, and when used in combination with the understanding that the market will react daily to the news out of Europe, for example, but its greater concern is global economic growth, it provides an edge traders need, a way past the emotional market swings brought on by the daily reporting of news about a problem that has been with us for years and will be with us for more years to come.

Best Wishes,

Lou Mendelsohn


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