Call me "slow", call me "dumb", call me whatever...but I just figured out that the stock market has nothing to do with reality when it comes to the true direction of the economy. The stock market used to be a real indicator of economic direction, or let me say that the market used to react to the true direction of the economy. However, today, the stock market is nothing more than the world's largest gambling casino playing with the money we place in mutual funds and retirement accounts.
This week the stock market had its ups and downs, but the reason for the movements is what is not only surprising, but shocking. It is for this reason I finally learned that logic does not prevail in any way in the stock market today.
Despite the fact that we had a week of poor economic reports on housing, jobless claims, and other areas (I will provide you the details of these reports in a moment) it is clear that these reports just do not matter. When you read the next paragraph, you too will realize the stupidity of the markets and how it is nothing more than a game.
Investors this week primarily focused on the fact that they believed on Friday at 10:00AM when Ben Bernake speaks, he would give an indication that a 3rdround of economic stimulus may be coming. Please understand that he has not indicated in any way that there will be a stimulus announcement. It is all speculation on the part of market investors.
Well... the stock market posted a nice rally on Wednesday in hopes of his stimulus announcement. On Thursday the stock market dropped because the European Debt Crisis was back in focus. (I didn't know that it ever should have stopped being in focus) Then on Friday, Bernake announces, essentially that the economy is going nowhere fast. In addition, he made it clear that the government has minimal resources to assist in the recovery. So what do you think the stock market did? It tanked over 200 within minutes of the announcement. (Am I the only sane person that realizes that all the market movement on Wednesday and Friday was based upon nothing but, well... nothing)
To further illustrate my point, I heard an interesting quote by an investor just yesterday. He said, "The market does not even verify the validity of any rumors. We trade on the rumors and then look to see if they are true later on, but by then we don't even care because we have moved on to other rumors".
Another day trader was quoted as saying "the current state and movements of the market can give a traditional investor a heart attack. However what is happening today in the market is a day trader's dream". The reality is that almost everyone seems to be day trading and that traditional long term investing principles do not exist.
The major economic reports that the market did not pay much mind to this week were that New Home Sales declined .7% last month. The MBA reported that applications for purchase mortgages declined 5.7%. Mortgage Rates rose ¼%, and First Time Jobless Claims continue to remain above 400,000.
By the way, if Bernake stated that the government is limited in what it can do to stimulate the economy, then do you really think President Obama's announcement after Labor Day will be of any substance?
Let us see what reports the market has on tap for us next week that investors will not give any attention
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