iTrust Daily Insight

iTrust Daily Insight
Morning Edition 8.21.2019

So which is it: is the market “always right” or “sometimes wrong”?

I have heard in the past the question: how is it that the market is “always right” and can also sometimes be “wrong”?

The market is “always right” in that it reflects the dollar-weighted opinion of every trader, investor, market participant, market non-participant and speculator.  In other words, every market participant (or non-participant) chooses not to participate or to buy, or hold, or HODL, or sell at every given price.  So, at $10,000 per coin, many BTC traders will sell, others will buy and many others will just continue holding.  Of course, most people in the world will do nothing.  Whether there are more buyers or sellers at any given time will determine whether the price will go up or down in that moment.  More sellers means the price has to go down to induce buyers into the market.  More buyers means the price has to go up to induce more sellers to sell to those buyers.

The dynamics between buyers and sellers and holders and those who don’t pay attention are the market “technicals”.

Market “fundamentals” are things like corporate profits, interest rates, currency valuations, the unemployment rate and all the other “real world” factors which savvy investors consider when they make their buy, hold and sell decisions.  

Of course, the smartest investor might not have much money so he might have to wait a long time before other market participants move market prices to where that smart investor thinks they should have been before.
On the other hand, if the smartest investor happens to have a lot of money, he might most market prices with his/her own buying or selling activity and thus make it so that the market moves faster than he can buy or sell as much as he/she wanted to buy or sell.

Some market fundamentals are so big and so important that their impact on some markets are easy to predict.  For example, if interest rate policy gets changed by more than the market expects, the bond market will react in very predictable ways: if interest rates are cut (lowered) more than expected, bond prices will rise.  If interest rates are increased more than expected, bond prices will fall.

Similarly, if corporate profits are higher than expected, stock prices will typically go up.  If corporate profits are lower than expected, stock prices will typically go down.  (Other fundamental factors like future expectations might actually affect stock prices also.)

In every market, the most savvy traders, speculators and investors look at all the fundamentals they can and also try to understand what technical (trading) factors might also be affecting market prices.

In the next few weeks, we will be writing about some of these market fundamentals and market technicals.  

We will not be able to cover all of them and it is impossible to predict what factors will be most important to the market. 

However, we will continue to try to educate and provide expert opinion we hope to be helpful.

Tim Shaler is Chief Economist of iTrust Capital.  He is a published Real Estate economist, was a portfolio manager and asset allocation expert at his previous firms and is an adjunct professor at Webster University. His MBA (Finance) and MA in Russian Economic History are both from the University of Chicago.

For all media inquiries, please contact Blake Skadron at b.skadron@itrustcapital.com

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