The intermingling of billions of variables

Do you like ice cream? Why aren’t you eating it right now?

Did you get any bad news earlier this week? Why aren’t you already dead by suicide?

The answer to both of those questions is the same – Because there are lots of other things to consider.

There’s news of late that there’s potential for an economic recovery in the near future. That’s good news. And when the good news comes out, the vultures of Armageddon pour out of the clouds.

“But banks are still struggling! But manufacturing is still down! But Swine Flu! But unemployment! But ARM rate resets! But government inflation! But the housing glut! But the foreclosures!” There are lots of bad things out there – the system is not 100% healthy. The bears point to this bad news, and scoff at the concept that there could be a recovery.

Speaking only for myself, I find this attitude frankly, a bit silly.

There is always bad news. All the time, there are always a number of bad things going on in the economy. There are pockets of illness, areas of concern, cones of weakness. Economies are never 100% healthy. If you’re looking for reasons to be pessimistic, you can always find them.

I admit – I am an optimist – I look at the bad news, and the good news, and the history of the world, and I weigh them and I feel like we’re on a general upslope. There will be down periods, and it is possible that the current upswing is just a bear-market rally.

On the other hand, the fact that the term ‘bear market rally’ has entered the common language suggests it is overdone. Pretty much by definition, the actual recovery will be a surprise to a lot of people who are still expecting the other shoe to drop. Just like every downturn is a surprise to a lot of people who are betting heavily on the next “sure thing”.

I’ve made a habit of grabbing dire predictions, and posting them to myself 3-6 months later on – it’s a great way to gauge the sense of predictability. All of the dire ones have been horribly, horribly off. Many of them predicted rioting in the streets and a collapse of the dollar. Many predicted government near-collapse, hyperinflation and the complete paralyzation of credit. These things didn’t happen.

Others looked at various economic indicators and said ‘based on previous recessions, when X goes above Y, the recession typically ends in 3-9 months.” And now we’re hearing more and more people echoing that sentiment – that the recession will be over in the summer or fall. So far, those seem to be winning.

Bears laugh, and point to all the bad things. But it’s unrealistic to assume that bad news kills the market – growth has been occurring for many, many years despite bad news. There’s only a few times when enough bad things pile up and kill everyone’s optimism at once. And eventually, a few of those things go away, and optimism starts accumulating again.


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