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Running with the bulls

September 7, 2013

Spain San Fermin Running with the bulls

Have you ever watched the seven-day festival of Sanfermines in honour of Saint Fermin in Pamplona, Spain? In case you haven’t “The origin of this event comes from the need to transport the bulls from the off-site corrals where they had spent the night, to the bullring where they would be killed in the evening. Youngsters would jump among them to show off their bravado. In Pamplona and other places, the six bulls in the event are still those that will feature in the afternoon bullfight of the same day.” If you were in Pamplona in July, would you watch, run with the bulls, take on the bulls or stay away altogether? To me, the parallels to the current financial markets are striking and I shall explain why.

First, let us look at the economy to understand market psychology. Friday’s unemployment figures were released and revealed a rather disappointing jobs picture for the largest economy in the world. For details, please read the following article in the Washington Post: .  Looking deeper into the report, the numbers become even gloomier. According to the household survey released by the BLS , America actually lost 53,000 jobs in August. Interestingly, the age distribution of the jobs created/lost points to massive youth unemployment and older workers unable to retire. Take a look at the chart below thanks to

Job Gains By Age

These numbers are truly stunning and I verified them at the BLS website to ensure the chart is correct.

Market reaction

Given the terrible unemployment release, one would assume the stock market would not  be trading near all time highs. Yet the market turned higher after the release and didn’t return to unchanged until Russia’s Putin warned of aiding Syria in case of war. The stock market ended the day practically unchanged in what an objective mind would call a terrible day for stocks. Why?

As I have stated before, market psychology has become irrationally bullish at the moment. Any mathematical analysis of stocks points to an overvalued, high risk, low reward environment in a macro economically frail state of the world. However, we now observe conditions in which the stock market rallies when good news emerge and also when bad news emerge. Good news should boost earnings and bad news should entice the Federal Reserve to continue or even increase their current and future money injections. In fact, this week, Fed Governor “Kocherlakota Says U.S. Economy Needs More Stimulus”.

In short, the market has decided, there is only one way to for stocks to go, up. In other words, there is little if any correlation between economic reality and actual equity valuation. This week, a 30-year-old veteran of the markets explained the situation to me this way: “The only thing that matters is how much money the Fed prints, everything else is noise”.

Running with the bulls

Back to Spain. “Among the rules to take part in the event are that participants must be at least 18 years old, run in the same direction as the bulls, not incite the bulls, and not be under the influence of alcohol.” I would argue that similar rules apply to (potential) investors in the stock market. If you need the rush to trade, make sure you don’t get trampled or gored by the herd of bulls. As long as the bulls are running full speed, get out of the way or run along. This race will end in the not too distant future with the market bulls facing the same fate as the real ones in Pamplona. For now, I would suggest you stay out of danger and enjoy the show. Staring down the bulls may be risky to your (financial) health as shown in the picture below.



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  1. Tim permalink

    Hi Rich,

    Just thought I’d share an article from the New York Times about the ECB.

    I suppose the interplay between this and the upcoming German election bears watching.



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