The Simplest Explanation
I’m sure there are many rational individuals who, like me, have wondered why the stock market has in recent days remained fairly resilient despite mounting evidence that the European debt crisis is spiraling out of control and economies in Europe, China, the U.S. and elsewhere are hitting the skids.
In fact, the buying that has appeared when the market has been under pressure, seemingly like magic, has a frantic, almost panicky quality to it, as though those who are scooping up shares are much less concerned about getting the lowest prices than they are about making sure the market stops falling.
At first, I chalked it up to the fact that equity traders have shown, time and again, that they are very a little slow on the uptake when it comes to interpreting macroeconomic developments (the events of 2007 immediately come to mind), and have put their faith in “decoupling” and other bogus Wall Street theories.
Alternatively, I figured it might have something to do with investors’ maniacal faith, bordering on psychotic delirium, in never-ending rounds of quantative easing, even though a growing number of monetary policymakers have indicated that they are not in favor of further accommodation.
Then I saw this report at Business Insider:
Here is a chart we’ve seen before. It’s Obama’s re-election odds against the S&P 500. The two have been greatly correlated and continue to be so as the election nears.
At that point it hit me. Call me a cynic (and maybe even a conspiracy theorist), but as Occam’s Razor suggests, maybe the simplest explanation is the one that’s best.