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.
*”doona” is Australian for a feather-filled quilt that you have on your bed.
So What Gives?
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.
On the other hand, the Aussie economy is solid and people are happy about that – in a very unexcited manner. We’d actually be much happier if things had been dismal and there had been some kind of catalyst to make us think our future is brighter and things are on the up.
Sadly, while things are going well, us Aussies need more drama. We’re sick of ‘solid’. We expect solid, and solid is priced in.
This puts us in a slightly scary place, because if things suddenly don’t seem so solid – due to China shutting up shop, for example – things could drop like a stone as we saw in August last year.
We need news that China is going to be building 20 new cities in the next two years. That might spur things along a little.
It’s All About Expectations
The Stock Market is not a snapshot of the economy. It’s a snapshot of people’s expectations and fears. It’s a snapshot of their hope, or the absence of hope.
Make sure you don’t get confused, or suddenly you’ll find yourself long ‘solid and unexciting’, and short “optimism and hope” – and that would be a shame.
Wouldn’t it, everyone who’s been watching this spectacular rally from the sidelines?
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