The Market hates uncertainty?

“The market will not move until after the fiscal cliff, because the markets hates uncertainty.”

I hear this alot, and have even said it.  However, I no longer believe it, and have come to understand that the market loves uncertainty.  It’s what the market thrives on – you and I disagree on a stocks’ direction, we’re convinced we are right, and a deal is made to buy and sell.

Wall Street responds primarily to fear and greed, in the short term.  “Greed is good” has become an iconic line.  Everything goes up when the news is “good” until there is something to fear and then the market overreacts in the other direction.  When the fear is gone, it recovers.  It is primarily a forward looking animal so a good market is merely a forecast, not a fact.

This is completely different than Main Street- out in the real world, where 90% of all business are small businesses, its different.   A small businessman/woman makes decisions based on the day to day reality of their business-  I hire an employee because I have the demand and cash flow to do so, and expect it to continue at this level.  Not because of the bigger picture – the housing market, for example, has little direct affect on my hiring decisions.  In fact, its the other way around, really – the health of the underlying economy drives everything else.  If I can hire an employee, they can pay their bills, the government can stop supporting them, and maybe they can eventually save up enough to buy a house.

The public is different again.  I don’t find that the average American makes buying decisions based on the Market results for the day, or the housing crisis, student loan debt, Euro/Yen exchange rate, etc.  The overall economy has an effect, but they make decisions based on their budget and expectations, and delay purchases in bad times.  I find people tend to purchase when they are optimistic and don’t when they are pessimistic.

Private Sector Growth solves the economy!