Monday, August 01, 2011

The 30-minute memory of stock market traders

This morning (Monday morning), is the morning folks around the world are anticipating an agreement between the US Congress and the President to increase the US debt celling by $2.4 trillion.  Here is the breathless FOX News headline:
URGENT: Optimism Drives Market Rally, But Deficit Deal Still Not Sealed
Democratic and Republican leaders in both chambers of Congress will meet with their caucuses Monday for a hard sell of a compromise debt-reduction package that gives President Obama up to a $2.4 trillion hike in the debt limit as long as lawmakers can find an equal or greater amount in spending cuts.
Market traders have a “child in the candy shop” mentality.  What is so investor-worthy about the US approval of $2.4 trillion in additional debt?  Oh, wait.  I know.  Market traders (and the federal government) are like the spendaholic spouse receiving an upgrade in the credit limit of her maxed out MasterCard.  The problem is their income for their family of 8 is only $40,000/year and the maxed out card limit is $50,000.

But 30 minutes after the buoyed markets opened, the traders came back down to reality when their daddy, or should I say reality, got their attention with the news that…

Manufacturing data rains on budget deal parade

Manufacturing activity slowed more than expected in July. Congress reaches an agreement to raise the debt ceiling and cut the deficit by $2.4 trillion. European markets swing into negative territory.

It’s as if the market was suddenly poked back to reality – that the US is truly in an economic funk.  But then, in another 30 minutes, this reality will be overcome by another bout of memory loss.

I can’t decide whether market traders suffer from an Alzheimer’s-like short term memory loss, a child-in-the-candy shop mentality, or just plain ol’ opportunistic greed.

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