Courtesy of Joshua Brown, The Reformed Broker
Why did stocks go down when the Bureau of Labor Statistics said that almost 300,000 new jobs were created in May and that another 30,000 or so were being added to the March and April tally?
Because stocks don’t go up on good economic news, they go up on bad economic news.
Why?
Because people are rate-arded and they think emergency-level stimulus from the Fed is preferable to an economic expansion.
Why?
Because the media has trained them to think that way.
So anytime there’s good news, it’s really bad news for investors.
Yes. Except when it isn’t.
Huh?
Well, sometimes there will be good news and then stocks will go up because of it.
Then how do you know what to root for, if good news is alternately good or bad?
You don’t, it’s a fucking game with rules that change every week.
Then why would otherwise intelligent people even bother playing?
They have no choice, or at least, they think they don’t. People cannot live without thinking they have an answer for why things happen, it drives them crazy. They would rather have a make-believe answer that they themselves know is fake than admit they don’t know. This is how Greek and Norse mythology came about – the thirst to have a reason for why the sun rises or the sea becomes stormy.
And….this guessing…this is an actual job that people have?
Yes.
It sounds so ridiculous. I doubt it’s worth much in terms of compensation…
Actually, it’s the highest paid, most profitable profession on planet earth.
Come on!
It’s true.
So what should I think about interest rates, the economy and stocks?
It’s complicated.
What do you mean?
Well, stocks have been going higher for a long time because rates are low so they are the best option for investors. And yet rising rates are also supposed to be good for stocks eventually because they signal a better economy, which would be good for corporate profits.
So stocks sell off on good news at first but everyone thinks that eventually good news will move them higher, at some point. So how can a thing be both good and bad for stocks simultaneously?
Because it’s neither, in real life. It’s whatever you want it to be. Every day the correlations between thing 1 and thing 2 shift and change character. Sometimes oil being down is good for stocks and sometimes it isn’t. Sometimes rates rising is positive and sometimes it’s negative. The people who are most adept at concocting an explanation for everything are the people everyone else looks to for answers. But there is no truth that can be confirmed in real-time, only after the fact can an explanation be said to be the correct one. And while we await the results, there is only randomness.
Can anyone guess right most of the time?
There are like five people who can do this consistently, but they live in Switzerland or out in the woods of Eastern Long Island and they don’t talk to the press or manage money for anyone other than themselves. They’re billionaires and do not take part in the guessing games publicly.
Oh. Okay. I think I get it…So how does one win?
By not playing. Or by minimizing the chance for substantial pain if one’s predictions about the behavior of others do not pan out. It’s okay to have a view or an opinion. But it’s probably not a great idea to plant a flag in the ground and deny the possibility that other stuff will happen that cannot be foreseen.
That doesn’t sound very convincing. I’m going to find someone who knows for sure.
Good luck with that.
Picture via Pixabay.
