Aussie Trader, Jessica Peletier, succinctly points out the disconnect often seen between an economy and its stock market:
I admit it – I’m jealous.
Right now, I want to be American. I want to buy cheap houses and eat mega-huge fast food.
But most of all, I want a stock market that goes up.
Ours appears to have forgotten how. In fact it’s almost as though it’s pulled the doona over its head and decided never to get up again.
If you ask me, that’s kind of bizarre because you’d think the Australian Market has everything to live for.
You see, economically we rock. We have stable banks, interest rates that actually pay money and a resource sector that has the rest of the world drooling. And we have jobs for anyone who actually wants to work.
Now compare that to our American friends. Their banks have a less than sterling reputation, interest rates can barely go any lower, and there’s very few jobs in many areas – in fact whole towns are dying through the extinction of industry.
And yet their market is merrily making higher highs without a care in the world, while ours is languishing like a drunk on Sunday morning.
It simple really – the economy does not equal the stock market.
What does equal the stock market is people’s perception of what might happen in the future, and this goes some way toward explaining what’s going on with the US market.
Even though right now their economy is junk, people are overjoyed that there are green shoots appearing. People are more optimistic about the future. It doesn’t matter that right now, things are still rubbish – the fact is there is hope.
If the markets were a reflection of the economy, the US market may have risen marginally to reflect the odd green shoot. But what’s happened is not marginal, it’s a beautiful big fat money-making up-trend.
This is exactly why it makes sense to go directly to trading price trends!
HT: Abnormal Returns
