My View of the Stock Market

The direction of the market on a daily basis is set by short term traders. They digest the news in the market that day and then trade based on it. This is not a conspiratorial view of things, it's not as if I believe that they all gather in a room somewhere and decide on where the market goes that day, but it reflects the old Warren Buffett cliche - in the short term the market is a voting machine, in the long run it is a weighing machine. Every day there is an informal vote by short term traders. Keep in mind that these traders can change their mind very quickly, as evinced by the volatility lately in the market.

So what has changed recently is that the voting has been for an up market, and we have seen a rally from 11,500 to 13,000 in the DJIA. The media has proclaimed this to mean that the "worst" of the crisis is over, but in reality nothing has changed except the optimism of the market. In March the market was overly pessimistic, imputing a worst case scenario and now it is doing the opposite, imputing a best case scenario.

We still face the same problems that we had before with Housing, the Economy, the credit crunch, the high price of commodities, etc. So what is the point of this diatribe? Stop listening to the market, because to paraphrase Mr. Bumble in Oliver Twist.

"The market is a ass."