The „Dog” runs ahead…
“The relation between the stock exchange and the economy is like a man walking his dog. The man walks slowly, the dog runs back and forth.”(Andre Kostolany)
This quotation from Andre Kostolany shows how markets work most of the time. For example, sometimes markets react to economic news in a way nobody would have thought off and sometimes it just seems to ignore the economic “reality” outside the market.
You can see this best by watching the movement of single stocks… Once in a while bad news will bring them down massively, while at other times it seems like the market participants don’t even care about bad news and stocks do not react at all. This once again shows, how much markets are affected by psychology.
The last couple of weeks had markets rally. Maybe it was time for a bull run – after that long downturn. But this was a decision made by the participants. They decided, it is time to put some money back into the market. And if some of the institutional players start acting, many others follow. Any bad news won’t have the same affect now they had weeks ago, because looking back a couple of months participants seemed to be very fearful.
That institutions decided to invest again is a good sign. But we as investors can never be sure whether the dog, that runs ahead, is in control of its owner or the other way around.
If markets continue to go up but the economy doesn’t proof this runup the situation could turn again.
And you as investors should be prepared for this eventuality.
In my opinion, the market is currently like a patient being treated for depression. At the moment the patient shows good condition, he takes his medicine and seems normal. But on the inside he remains unstable and if the doctors won’t keep looking after him, he can fall into depression again.
So beware, even if the market seems to act normal at the moment. The situation is welcome, maybe it already shows the end of the crisis but this can only be a forecast. So we do not know for sure. Danger still remains that markets violently fall in a short time, as we have all seen at the end of 2008.