War in France? The Paris stock market just enjoyed its
best week in a month...
"YOU can't eat gold," is one of
the idiot arguments you'll hear against buying the metal from time to time, writes
Adrian Ash at BullionVault.
"That's right," you could reply. "Whereas
you can eat white truffles...shaved onto your Michelin-starred dinner and
charged to your bill by the gram.
...and maybe simply being edible isn't the best measure of
where an asset's price might head. Perhaps investment flows and credit count
for more.
US analyst Robert Prechter likes to tell a nice parable on a similar
point.
Imagine the devil offers you a bargain. He will tell you
tomorrow's headlines today. You must then choose to buy...or sell...the stock
market.
Long or short, you simply have to hold your bet for a
couple of trading days. Let's say 1 week. Or a month if you think the news
deserves it.
Tomorrow in Dallas, Texas the wildly popular US president
will be shot dead.
How should you bet? Will you buy or sell the US stock
market?
Well, if you chose to sell the Dow Jones Industrial
Average after it slipped 1.3% on Thursday, 21 November 1963...the day before
JFK was assassinated...you would have made money by the market's close on
that dreadful Friday.
The Dow dropped almost 2.9%.
But the next trading day...and the week after that?
The Dow rose 4.5% on the Monday, slipped on the Tuesday,
but added another 1.3% on Wednesday.
Overall, within a week of JFK's murder, the Dow traded
2.4% higher. And inside 3 weeks it was marking new all-time highs.
In fact, that drop on 22 November 1963 proved only a blip
in the Dow's strong bull run from spring 1962 to autumn 1966. And Prechter's
point is that news headlines really don't drive financial markets. Just like
edibility doesn't.
You can't eat gold, Dollars, or share certificates. (Although
yield-hungry fund managers buying bonds with negative yields might yet get
their own heads handed to them on a plate.)
"Fewer than 10 stocks have fallen, among them Accor,
Europe's biggest hotel operator, which dropped 4.7% on Monday...[but] clawed
back more than half of those losses."
Is this patriotism? Defiance? Or have investors no
shame?
Well, "the CAC40 index," replies Bloomberg,
"remains one of Western Europe's best performing equity indexes [all of]
this year."
And as Time magazine notes, "More likely, it's a sign
of investor faith that central banks will do everything in their power to
prevent a recession in the immediate aftermath of a terrorist attack."
But he fired up the money-copter regardless, fretting that
inflation is too low and vowing to do "what we must" to fix that
little crisis for consumers, savers and pensioners on fixed incomes.
As for Robert Prechter's parable, he believes it shows how financial markets don't watch the evening news or
read the papers. Instead, they do what they do thanks to deep, near-mystical
forces of human nature revealed to technical analysts by price charts.
The Fed's much-delayed rate rise from 0% could then prove
a news headline to ignore next month. If it actually happens.
