Monday, November 16, 2009

Market Dynamics or The Stinky Thumb Rally

This market has been met with much incredulousness. We want the market to bend to our logic and comply with our wishes (which generally means enriching our held positions!). I was perplexed for a good long time before I came to embrace the notion that the market runs on emotions: fear and greed. Of course we know that; it is a mainstay aphorism.

I also have come to understand that fear and greed evolve into something more. We get a two-fer on this: Fear of being left behind and fear of missing a move. We have the bulls who have sat out this rally: scratching their collective heads when they were not sitting on their thumbs. I'm tempted to call this the stinky thumb rally--but that is not really polite, though quite descriptive. And we've have the equally bewildered bears who haven't seen a rally yet that they were not eager to short for fear of missing the next big move down.

And in the space between what the participants think the market should be doing v. the reality of the price action is then filled with all manner of speculation about the shadowy heads and hands that are mysteriously propping up the market. Those on the wrong side gripe about how unfair the market is, how rigged it is.

The market is no different than any other venue in life. Why should the market be fair? Life isn't fair. Business isn't fair. Neither love nor war is fair. Fairness in the market place--and we all know that 'fairness' really means that the market conforms to our expectations--is an ideal. If we are to be active market participants, we must understand the risks and the rewards. Energy spent hurling invectives about nefarious third parties is energy wasted in my view.

If we want an explanation of the market we merely need to understand this: money needs to find a return--and as money seeks return the interplay between bulls and bears will continue to fuel the market's upward march. It will come down again. It always does, but on its own time. When the bears stop shorting and throw in the towel in disgust and the bull's realize that the exit doors are looking a bit far away and narrow for the crowd to safely exit will mark the 'time'.

And not a moment before.


Biffermas (Chris) said...

Leisa, you are just so damned sensible, and I love it!

The constant griping about fairness and sadistic puppet masters controlling the market is a juvenile argument at best. Life is messy and crooked and unfair, end of story. Why does this shock anyone?

The market will drop when everybody is calmly settled inside the theater. The doors will be locked and the place set ablaze.

Leisa said...

Thanks Biff..

I think that railing against it helps relieve the pressure. Rev Shark over at Real Money really helped me with that understanding.