Tuesday, April 22, 2008

Is the Market Behaving Rationally?

With this latest surge in the market, I seem to be hearing disbelief from many columnists and bloggers. Its seems everyone set themselves up for the worst, and it just won't seem to arrive. This goes back to the question I've been posting for the past few months, can a bear market arrive if everyone expects it to? I think investors can prepare for earnings and overall market weakness, but if everyone is sheltering themselves, the overall declines will be limited. All I heard in January through March is "financial crisis, banks have no liquidity and will collapse, etc. We had the situation with Bear Stearns, but it was handled quite well by the Fed, and so much of that was fueled by fear. After that was over, all I heard was "earnings estimates are way to high." Well, in a one-word response to that, I'd say "Google." This situation reminds me of a quote by famous economist John Maynard Keynes, "The market can stay irrational longer than you can stay solvent."

Don't get me wrong, I do think there is a lot of weakness out there, but this is a point I wanted to make.

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