Securities Markets Revealed


Logically speaking, stocks should do well when companies are growing fast. But as a practical matter, stocks falter whenever employment figures indicate companies are hiring workers. This illogic becomes our new logic. We accept it, profess it, and enforce it.

Remember the morning of the stock market crash in ‘87? In the closing hours of trading on that fateful Monday, with fear of a recession gripping the nation, the bond market soared! Everyone else was drowning themselves in whiskey, and bond traders were uncorking champagne. Sorting out the cause-and-effect is like the old routine, "Who’s on First?"

Costello: So stocks went down because bonds went ...?
Abbott: Down.
Costello: And bonds went down because inflation was up?
Abbott: Exactly.
Costello: So what happened when stocks went down?
Abbott: Bonds went up.
Costello: But you just said stocks went down because bonds went down!
Abbott: They did.
Costello: And then they went back up again.
Abbott: Now you’ve got it.
Costello: I don’t have it at all! Now what about inflation?
Abbott: Oh, there was no inflation.
Costello: You just said there was inflation!
Abbott: That was before stocks went down.
Po Bronson


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