This morning, sipping my coffee and listening to Ben Bernanke’s testimony to Congress, a thought occurred to me. Sitting there, trying to arrive at some clarity regarding the economic messiness in the world, I thought about you, the guy or gal reading this column. Now that alone is not unusual. I think about you every time I sit down to write. Every writer should. No, what was a bit out of the ordinary was the piercing specificity of my thought – I wondered if you are getting as tired as I am of the daily battle between rationality and irrationality.
It is nothing new for me to say the market is irrational. I have said the market represents our collective consciousness, which means it moves on human reaction to stimulus. Intellectually, I understand what is happening, but that does not change my reality, which is that day in and day out, the constant up and down is tiring. Specifically, watching irrationality and rationality battle day in and day out is wearing me down. One day the market hears bad news, reacts, and then moves down strongly. The next it hears good news, reacts, and runs as far in the other direction.
Yesterday, Europe ruled the news and the market responded …
Investors remained cautious over developments in Europe. Moody’s downgraded Ireland’s debt to junk on Tuesday and said Ireland was likely to follow Greece in needing a second bailout. Irish bond yields jumped to record highs.
Today, China dropped in and the market responded …
Optimism about the global economy gathered pace after data showed China’s economy grew faster than expected in the second quarter, easing fears about a hard landing in the world’s second-largest economy.
I get it that uncertainty is the operative word in the market today. I get it that the world economy has many profound and complex issues that hold potentially catastrophic consequences. I get it that the market (our collective consciousness) is nervous and nervous people act irrationally. Yes, I get it all, but that doesn’t change my sentiment about the day in and day out constancy of rationality versus irrationality. Maybe it is just me because I spend so much time studying all of this. This brings me back to my thought about you. Is all of this wearing you down as it is me?
The answer probably depends on the type of person you are and the type of trader you are. Perhaps volatility has no effect on you. Perhaps you are so good at trading that you can time the ups and down for substantial profit. I, on the other hand, expect rationality to reign, so irrationality bothers me. As to trading … I am not good enough to time the volatile swings, so I sit on the bench more than play. Here is one more quote for you to ponder …
The truth is, contagion is little more than opportunity for activist bond traders. Debt worries clearly ebb and flow yet the underlying indebtedness has not changed.
Trade in the day – Invest in your life …
