One of the greatest errors people make is to think that the level of good or bad economic or earnings news is related to future stock market performance. Always the market is anticipating the future, and the market now has in its sights the election, the coming increases in service rates, and all else.

It is interesting to contemplate a graph of the DJI and its 10% continuous rise in September and relate it to Iowa bets on the outcome of the November election with its steadily decreasing blue line and increasing red line graphed below. 

Ken Drees writes:

The idea that the market is a seeing creature, very blind short term but correct and on target 6 months out really has been taken for granted as an old sharp cutting saw. So what is the market seeing now 6 months out? In April when the market was topping–what did that market see for this October. Thereby in March of this year when the market was moving up–it forecasted the best September in 70 years?!

I really don't get this, but actually am programmed to believe that somehow the market sees things that the crowd doesn't. Now we are told that the market sees a republican victory and stoppage of anti-business actions–maybe the start of repeals against major programs, or at least old fashioned gridlock. What is the best way to use the market as a "seeing" tool?

Gary Rogan writes:

Everywhere I turn I read about how the liquidity injections by the Fed are what's really pushing the stock market higher. How would one go about separating the effects of the extra liquidity from the anticipatory ability of the market? 

Also, since correlation does not imply causation, could it be that some of the same underlying causes that result in high liquidity also result in the increased republican takeover. For instance:

High Unemployment -> More Liquidity to Spur Employment -> Higher Stock Market

High Unemployment -> Higher Republican Chances

High Unemployment -> Lower State and Federal Revenues -> More Need To Borrow -> More Need for Low Interest Rates -> Higher Liquidity -> Higher Stock Market

…-> More Need To Borrow -> More Dissatisfaction with High Debt -> Higher Republican Chances

… -> More Need To Borrow -> Lower Dollar -> Higher Stock Market in Today's Dollars

High Unemployment -> Higher Mortgage Defaults -> More Government and Fed Intervention to Prevent Defaults -> Higher Dissatisfaction with These Efforts -> Higher Republican Chances

… -> More Need To Borrow -> Higher Concern with the Stability of the System -> Higher Gold Prices -> Higher Stock Market to Maintain Some Parity with Gold

This can go on for a while, but I think the point is clear.

Charles Pennington comments:

It would be alarming that the public apparently trades so poorly, but I've never actually met anyone who was a member of the public, so likely the losses are not significant, and whatever they are, surely they are compensated by all the winnings at poker, for I have not heard of a single soul who loses at that game.

Mr. KrisRock writes:

Has anyone seen "my old friend" Gold…he was supposed to top out like the way "gut feel" counting Russian said it would…unfortunately, Ben Bernanke's actions have made the Russian feel like he's not welcome at the FED…happiness in when you don't fight the FED but unlike the public who are buying GOLD hand over fist, the PROS always know right.

Jeff Watson adds:

Conversely, perhaps it's us "professionals" who are the ones who trade poorly, like I did a week ago last Friday going long the entire grain complex, only to get blasted on Monday and Tuesday. Or, like some of us who play poker, people like me who play six games at a whack on six screens on Pokerstars, losing at 5 of the games. Those losses, plus the vig, the mistakes, and the admitted waste of time and talent are the real crime. 


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