TraderPlanet offers so much valuable content every day one can find interesting writing pointing to interesting thinking around every corner. Nicholas Santiago (The Whipsaw Could Just Be Getting Started) provides some interesting thinking written in a manner that appeals to my sensibilities. Here is an excerpt.
The driving force in this market is not earnings or the economic news. Nor is it the Federal Reserve Bank talking of the next remedy they have in the medicine chest. It will not be the European bank’s stress tests; it will not be any of these so called major events. It will be and has been one thing since 2008; it is the movement and action in the U.S. Dollar. When the dollar declines, the markets inflate. When the dollar rallies the stocks markets around the world deflate. Personally, I believe it is that simple.
His last sentence is most appealing, as I also believe some of the most convoluted and seemingly complex market issues are “that simple.” As I have said before, we tend to take the simple and turn it into the complex. This is the curse of our ability to reason. Our blessing is that if we actually use reason wisely, we can see when we have morphed the simple into the complex. Santiago’s reasoning in his article makes sense, but I respectfully take issue with the focus of his simple conclusion.
Simply, some things are truly complex, and our current market is one. Myriad factors motivate market movement in general, and the U.S. dollar certainly is one important factor, but in our current market climate, to conclude that the U.S. dollar is the single driving factor is to assume we all think alike specifically, which, of course, is not true. Witness the variant opinions on market movement from all the folks who actually trade and invest trillions of dollars on a daily basis.
Now, having said this, I will backtrack and say that although the forces that drive today’s market are complex, I do believe Santiago is correct in the notion we can identify a single driving factor of market movement in our current market environment – uncertainty. Investors, the big money kind, and CEOs, the big corporate kind, are sitting on more than a few trillion dollars because they are not certain which way the economy is going to go. When that uncertainty is relieved, the corporate money will flow into reinvestment in business (jobs, GDP growth), and, following that, the big money investors will release their horded cash and money will then flow into the market in a steady stream until the next bout of uncertainty creeps into the market, until fear, once again, replaces greed.
Yes, myriad factors drive our current market, but when you lump them all together, the good and the bad, the sum of it is that we vacillate between fear and greed almost on a daily basis, and the single world we use to describe this state of mind is “uncertainty.” Although we all don’t think alike specifically about the driving forces behind market movement, we do tend to act and react collectively to fear and greed. So, yes, personally, I believe it is that simple.
Trade in the day; invest in your life …
