Markets: Understanding Today's Action
The last few days' wild action on the major markets reminds me of the great "Long Johns" skit on market sentiment, and how markets work:
John Bird: You have to remember a couple of things about the market. They are made of very sharp and sophisticated people, some of the greatest brains in the world. And the second thing you have to remember is that the financial markets, to use the common phrase, are driven by sentiment.
John Fortune: What does that mean?
John Bird: What does that mean. Well. Things are just going on as normally in the markets, and then, suddenly, out of the blue, one of these very sharp and sophisticated people says, "MY GOD! SOMETHING AWFUL IS GOING TO HAPPEN! We've lost everything! My God, what are we going to do?"
John Fortune: Shall I jump out of the window?
John Bird: Shall I jump out of the window. Exactly! Let's all jump out of the window! We've lost it ...
John Fortune: Sell!
John Bird: Sell! Sell!
John Fortune: Sell!
John Bird: Yes, precisely ... and then, a few days later, these same sophisticated persons say, "You know, I think things are going rather well." And everyone else, "Yes, I agree. We're rich. We're rich."
John Fortune: Rich! Yes. Buy! Buy! Buy!
John Bird: Yes. Buy! Buy! Yes. And that's what we call market sentiment.
You can, of course, watch the whole thing too.
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