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Why the Bull Beats the Bear


In spite of ongoing crises and other overwhelming bad news, our stock market thrives and there are several reasons this optimistic behavior should continue in the face of reality.

Natural disasters like floods, tsunamis and earthquakes plague our universe leading to economic loss. Poor human judgment associated with marginal ethics likewise makes a negative impact on global prosperity — just look at our recent banking and housing fiascos.

In spite of these ongoing crises and other overwhelming bad news, our stock market thrives. I call this phenomenon “hope over reality.” It happens over and over again in collective investing behavior, even when it seems we should be running for the hills instead of taking a risk.

Though it seems counterintuitive, it is likely that this optimistic behavior will continue, at least a while, even in these fragile times. There are several reasons.

Perhaps the most basic is that it is human nature, to pick one’s self up by the boot straps when the chips are down and try again. Without this will to live and succeed, our market would go down in the face of recent news, but it doesn’t. Since 1928, the average bull market has lasted about three times as long as the typical bear market (915 compared to 310 days respectively).

There are also economic reasons to be positive as well.

First of all, our economy, though rife with problems, is still steady. In addition, whatever positive reserve it has in it will likely be unleashed by Quantitative Easing III, almost sure to be initiated before the next election. In addition, people are likely to want to earn some yield on their investable monies. Right now, bonds are a poor option, which leaves stocks as a good alternative, again raising the stakes that the stock market

will continue elevated.

Though we all worry that disaster will occur and ablate our market gains and the hard work that made them possible in the first place, it is prudent to take heed. Hope does spring eternal. Our U.S. market is stable. The global economy is working on finding its way. The investing crowd is acting accordingly.

As an old American idiom says, “When you can’t fight them, join them.”

Read more:

Bad Boy Brokers

Exchange-Traded Funds: Dumb Money?

Safer Bets for a Fragile Market

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice