From the Morning Desk - Half Baked

Often, negative news comes out and the stock market rallies. The economy is terrible; the news that came out was bad so logically the price of stocks should drop. But they don't.

Stocks do not mirror the present, but rather the future. It’s similar to horseracing or poker, where you place your bets before the outcome is known. And while not always correct, the stock market typically has been a great predictor of the health of the overall economy.

Rumors and future news are often "baked" into the price of a stock. For example, if company ABC pre-announces a very weak quarter, the stock sells off immediately and might drop from $20 a share to $16. At $16, a lot of weakness is baked in. A month later when ABC reports a mediocre quarter, the stock jumps to $17.50. Why? Because the street was too negative, even if the numbers were not good.

Weeks ago, the entire stock market was pricing in a depression, not a garden variety recession. When news started coming out that things were not as bad as people thought (eg. leading indicators showing stabilization), the market started to rally. Equities were mispriced.

So, right now the stock market is predicting that the US economy will not go into a depression. People who have disagreed with this view (short-selling bears) are getting killed.

Folks, this is Johnny Newsmaker signing off. We now return you to your regularly scheduled programming… "Third World Champion Poker on RTNN" only on Ranting-TV…