Translation from pragmatic by CULLEN ROCHE
Tried as close to the text , don't blame me.
Markets don't give a damn about you. They don't care about your family., your feelings and especially your wallet. Despite record deficits, QE2, 9.4% unemployment, continued stimulus to the economy and zero interest rate, many are discouraged with the rally in the markets. What's happening? Investors are asking the question., that there is a huge mismatch between market and reality. I understand, that there are many positive signs of recovery, but the facts remain–people don't feel , that the recovery touches them in some way, but the market – not economics. working class- this is not Wall Street, but a market- heartless monster , who craves only one thing - PROFIT!
Although we live in a Bernanke world- Savior and endless redemption of bankrupts, the market remains the last stronghold of natural selection in the modern world, if capitalism in all its forms is allowed to function, then it's cruel , heartless , but surprisingly effective brute. The weak disappear, the strong survive; for the strong the reward is enormous, for the weak the losses are unbearable You must never forget , that this is a world of cruelty, who has no pity for you or your emotions.
The stock market is priced on expectations of future earnings,which are often true, but in most cases they are refuted by time. As we saw in 2007, those expectations were too optimistic, investors thought, what is not visible on the horizon of economic decline, but the situation was cardinally surprised for the worse .
When the market waterfall occurred in 2009, investors had opposite expectations.. They were diametrically opposed to the previous ones. Profit growth estimates became unreasonably low., after which the market returned to mean reversion (average historical estimates).
When the economy started to stabilize in 2009 , at best it remained stagnant. But, the loss of the economy has become a good profit for corporate America. Massive cost cuts have made corporations more efficient. Due to the diversified nature of businesses and the strengthening of the global economy, revenues began to grow and improved the balance sheet position of companies. Despite the continued weakness of the American economy, corporate profitability continues to grow in 2009 and 2010 while, that unemployment was rising.
Ruthless " cattle" didn't give a damn about the unemployed, about not growing salaries or L-recovery. She only cared about company reporting and reporting was promising, especially when compared to expectations.
Over the years I have tried to measure the degree of mismatch between perception and reality. ,using my expectation rate – Expectation Ratio. This ratio has been bearish since 2007 and became mostly bullish during the last rally.. If I've made a mistake lately, so it was focusing on , what is right for the economy( labor market growth, organic growth, etc..) instead of, to pay attention to about, what the market wants( higher earnings- no matter how they turned out). Same way, as in trading, the approach to the analytical process must be non-judgmental and must be flexible and mechanical. Finally, the task of analysts is to generate profit in investment.
Connecting analytics with investment action is an essential element of success. Allowing the emotion of the macro forecast to creep into this process, then do not expect a good result. Remember, the market is not the economy. The market doesn't care about your unemployed emotions or suffering., & quot; cattle" is fueled by negative emotions and very often it manifests itself at the very moment, when everything is good and you are happy with yourself she again " tears you apart ''.
As investors, we always learn new things, evolving and polishing our skills , to avoid mistakes and pitfalls, which lead to self-destruction. Little in the history of such investment cycles, which would be so instructive, like now. We are experiencing a renaissance in economic thought, economic theory and investment. It is unlikely that we will see so much cognitive in the future.. And despite the fact that, that this cycle is still very painful for many , it also represents a huge lesson, from which you can learn a lot of useful.
In terms of investment, there was no more important lesson for me, which is burnt into my soul,than the fact that, that the market is not the economy and the market is indifferent to you, your family and your emotions and experiences. Only one thing is important for him - PROFIT.
And these profits are often derived from all of that., what we expect from this world is the brutal reality of the capitalist system in which we live. She may not be fair, it is possible and wrong, but that's it, what is. Ultimately, capitalism is the most dynamic, innovative and productive system in the world. I swear! This system does not care about you and if you forget about it, she will swallow you" or destroy