All I have heard over the last year is that we are about to head into a recession – an economic construct suggesting a negative market environment. And, this has kept many quite bearish of the stock market, with most looking at the rally from 3500 to 4600as the market being “wrong.” Well, I have some news for you, which was well said by the legendary Jesse Livermore:Yet, we have all read many analysts over the last year that were bearish for most, if not all, of the 1100-point rally.
But, we still are left with the claim that all investors act rationally. Another ridiculous proposition. One only has to look at a price chart to know that there is no rationality associated with the stock market movement. “The relatively small market responses to such news, along with evidence that large market moves often occur on days without any identifiable major news releases casts doubt on the view that stock price movements are fully explicable by news“
To take this one step further, many recent studies have outlined that our actions in the market are not likely driven by reason at all. Most interestingly, other studies have shown that we do not even need information for a market to react “normally.” You see, interest rates were almost at the exact same level in October 2022 when we were hitting the 3500 lows as they were at the end of July when we were hitting the 4600 highs. As far as the dollar, well, one simply has to look at a long-term chart of the dollar to know that it has been in a long-term uptrend alongside the stock market since 2011.
And, if you are still unconvinced, in January of 2010, Eugene Fama, the father of the Efficient Market Hypothesis, told the New Yorker: What other “science” continues along a path that is recognized by most as inadequate? To date, we still debate the cause of the Great Depression, the October 1987 market crash, the Asian financial crisis, the 2010 Flash Crash, and many other “anomalies” in the market. I fact, in 1997, a Nobel-prize-winning economist noted that
If you are interested in a much deeper study of this perspective, I strongly encourage you to read The Socionomic Theory of Finance , which is a groundbreaking volume in its depth and breadth of analysis of the current paradigm, as well as its focus upon a proposed new paradigm. “Our excessive confidence in what we believe we know, and our apparent inability to acknowledge the full extent of our ignorance and uncertainty of the world we live in. We are prone to overestimate how much we understand about the world overconfidence is fed by the illusory certainty of hindsight.”
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