Few things are as annoying as a business analyst talking about the stock market like it’s a human being. “The market reacted to this,” or “the market doesn’t like that.” In reality, such statements are just after-the-fact attempts to make sense of irrational price movements. But let’s play along. Let’s assume that the stock market’s movements do have rational explanations. And today, after a week of price declines totaling about ten percent of market value, almost all of the talking heads agree: the cause is the ongoing collapse of
economy, which hurts even U.S.
stocks in our “interconnected world.” Okay,
good enough. But this explanation, in
turn, leads to another question: How stupid is the market?
That is, assuming that
economy is the cause of our own market turmoil, why wasn’t this information
priced into U.S.
stocks more than two years ago? It was
in March, 2013 when 60 Minutes exposed the Chinese economy as a house of
cards. Sure, China
appeared to be growing — it was building shopping centers, high-rise
buildings, condos, and even entire cities at a break-neck pace. But the problem was that its government-controlled
economy was building “ghost cities” that stretched “for miles, and miles, and
miles, and miles,” yet were (and still are) sitting completely vacant. It was obvious then — more than two years ago
— that China’s so-called
growth, if not its whole economy, was pure fiction.
Because it took the U.S. stock market more than two years to finally realize this, I can only conclude that the market is not as “efficient” as it’s cracked up to be. In fact, far from being efficient, I’d say the market is a bit on the stupid side. But there is another possibility: the market’s latest price dump was not caused by the collapsing Chinese economy, but instead can be chalked up to another irrational price movement — or, more accurately, the inevitable correction of years of irrational upward price movements.
So that leaves us with stupid or irrational. Take your pick.