Picture
A lot of times things happen in the market because the majority sentiment makes them happen.  Imagine this scenario:

A young artist is happy that his art is beginning to sell.  He has just been commissioned to do a portrait for the Mayor on the 3rd anniversary of his office.  He and his girlfriend go out for dinner to celebrate; they start talking about how soon they will be able to qualify for a mortgage and buy a house.  As they're walking toward the restaurant they look at the news stands with large headlines about how things are bad in Europe, China isn't picking up and the US unemployment numbers are still too high to signal a recovery.  They start feeling worried.  Maybe they should wait a bit about getting the house, if the recession hits his income will surely be affected as people cut down on artwork first.  

They get to the restaurant and are still talking, and they decide to be more careful with the money they have. The restaurant owner comes by smiling: "Congratulations! I hear you are doing a painting for the Mayor" he says, "are you celebrating with some champagne this evening?" The couple look at each other and pass a knowing glance.  The young artist turns to the restaurant owner and says "we hear that things are pretty bad in the economy, and there might be another recession coming soon, so we've decided to cut down on spending; we will just have a glass of wine each to celebrate".  

The restaurant owner hears this and starts feeling uncomfortable.  He goes to his office and calls his broker, "cancel that order I placed to buy those shares I wanted.  I hear that things are pretty bad and we are heading to another recession, I want to keep as much cash in hand as possible, and don't want to risk losing money again", then he calls his wife and says "honey, I think we should cancel that trip we were going to take this year, I hear things are pretty bad in the economy we should conserve our resources and ride this out".  His wife is disappointed and she calls the travel agency to cancel - you got it the message spreads like a virus.  

In the final transmission, the Mayor calls the young artist and cancels the commissioning of the portrait.  He says "sorry young man, I hear things are likely to get rough, we will talk about this portrait when things are better". The young artist hangs up the phone in despair and turns to his girlfriend "remember what we were talking about? It's starting to happen already; that was the Mayor, he just canceled the portrait".

See how we contribute to the downward spiral?  In the same way we also contribute to the upward spiral.  Feeling better about how things are is the first step towards recovery and then the manifestation of it follows.


10/21/2012 09:36:09 pm

First of all let me tell you, you have got a great blog. I am interested in looking for more of such topics and would like to have further information. Hope to see the next blog soon.

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10/25/2012 12:17:17 am

Thank you for stopping by. Your comment is appreciated. Please let me know what you are looking for and I will endeavor to provide you with more information.

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