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Current Stock Market Optimism - What Does It Mean For The Economy?

Posted on 18, Mar, 2013


Whenever you see a bullish stock market you may have very good reason to feel at least somewhat nervous. The overall optimism of the market has seen investors plough a lot of their money into mutual funds and exchange traded funds, to the tune of around US$20 billion in fact. Unfortunately what normally follows on from this kind of enthusiasm are pretty poor returns, simply because most investors got caught up in the excitement of the market instead of actually understanding what they were doing. The simple fact of the matter is that most investors have pretty poor instincts when it comes to making good calls over the medium or long-term on any kind of investment.

What remains though is the reality that an optimistic stock market can result in an optimistic economy and the fact that the Dow Jones is now running around 14,000 means that, as far as many people are concerned, the worst days of the recession are now behind the United States. The S&P rating being back to pre-recession 500-ish levels is also an indicator that a growth period might be around the corner for the country too.

The question now is whether or not the optimism we see in the markets is a good sign or just a case of more smoke and mirrors to convince the general public that everything is fine? In fact the reality is that the disastrous years from 2008 through to 2013 have changed how people view the stock markets and investing as a whole, and real proof of that was the almost outright failure of the Facebook IPO. Five years ago that IPO would have had a very different outcome but that's the nature of the financial landscape we find ourselves wandering through - it's constantly shifting and evolving.

In as much as everyone wants the recession to be over we most definitely can't do the financial equivalent of simply putting our hands over our eyes and pretending it's not there, and this is what some suspect the current buoyancy in the stock market to be the equivalent of.

Right now the US economy is on a path to recovery but there is still the massive potential for the politicians from both parties to throw their spanners into the works and sabotage the recovery for their own means. You then need to include China in your economic equation because the property bubble there of ghost cities looks set to go "pop" in the not too distant future. If China goes into freefall then you can be sure that it will take as many other Asiatic economies down with it as it possibly can.

For all our ability to predict the future of our finances and our planet it's important to factor in the unknown events that can and do affect both our planet and the economy – for example the asteroid exploding over the Ural Mountains in Russia just a few weeks ago being a prime example.

It might sound farfetched but an asteroid of that size could strike anywhere on our planet without warning and if that were to happen in a major financial center like London, Tokyo, Mumbai, Beijing or New York....well you don't need us to tell you what the economic fallout from that would be. 

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