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Posted by Eric on December 27, 2018
We're taught a young age: what goes up, must come down. We learn it when we ride an elevator or escalator. When it comes to the stock market, however, many of us prefer to think that what goes up, must keep going up! Perhaps that says something about an optimistic spirit, or maybe its just naivety.
The euphoric ups of the stock market lasted for over 91% of 2018. But, alas, the waning days of of the year have provided the depressing downs, and just when everyone was getting ready to party! Bummer.
Why do the markets bounce so? We're told the economy is in great shape! That spending over the holidays was strong, meaning consumer confidence is strong! That's awesome! So, why the free fall?
The quick answer is that "the markets" don't "like" "risk." Which is ironic. How can a stock trader whose knowledge, bravado and nerves earned him/her the title of "Master of the Universe" -- at least in the parlance of Tom Wolfe's classic Bonfire of the Vanities -- become unhinged by the today's risks, especially considering the economy is healthy? Does the talk of making the trade balance with China more equitable or a Presidential tweet about the management of the Federal Reserve really deserve to be treated the type of 'risk' that sends market tumbling? If so, I would really hate to see what would a real crisis -- like the one 89 years ago in 1929 -- would do to the markets. Perish the thought!
In the meantime, let's hope 2019 heralds in more ups than downs. Those ups don't necessarily need to be euphoric so long as the downs -- if they must come -- aren't depressing.