The double dip is gone, for now. Markets soar. Do you have a sudden urge to buy? You're not alone.
The bull came charging back yesterday, the FTSE surging 140 points or 2.7% to 5,366. Over in the US, the S&P jumped almost 3%. So much for the double-dip recession, hey?
You have to say it was coming. When I read pundits saying things like "shares are cheap, but…" you can be assured one day, traders will wake up, smell the coffee, and pile into said cheap shares. It only takes a few of them, and the rest blindly follow, desperate to make a buck or two on anything that moves.
Doing the business yesterday was an index of US manufacturing rising in August to 56.3, well ahead of predictions of 52.8. A reading above 50 indicates expansion.
Adding to the sense of relative euphoria was China's purchasing managers' index climbing to 51.7, again exceeding forecasts, and signalling the slowdown in the world's second-largest economy is stabilising.
But it could be all short-lived. On Friday, a poor US Labor Department report could send the markets into a tailspin again. Or maybe not? Do you feel lucky?
We'll All Be Alright, In The End
The economic data is coming out think and fast. Some good, some not-so-good. The art of accurately predicting the future remains as difficult as ever. So why bother?
I do it for fun. I do it not based on some tiny piece of data coming out of China, the US or Outer Mongolia. I do it on gut feel.
My gut feel says everything will be alright, in the long-term. My gut feel says this economic recovery will be slow and steady. My gut feel says the chances of inflation are far greater than the chances of deflation. My gut feel says now is a better time to be buying shares than to be selling them.
My critics, of whom you can read their comments in the boxes below (go on, give it to me with both barrels), will say I'm far too optimistic, that I'm looking at the world through rose coloured glasses, that my glass half-full attitude will see me miss the next Great Big Crash, just like I missed the last one.
A Sudden Urge To Buy
I don't apologise one little bit. Life is for living. It's for having fun, for being optimistic, realistically so. I missed the last stock market crash. So did 99% of others. What did I do about it? I bought more shares at close to the bottom of the market, when they were trading at cheap prices. There's always a positive, even in the darkest days. Life goes on.
Anyway, back to the markets. After the Great Rally of Yesterday, are you feeling a sudden urge to buy shares? I am. Are you now believing certain shares are cheap, especially when compared to the record low Gilt yields? I do.
Heck, even GlaxoSmithKline (LSE: GSK) jumped 3% yesterday. The pharmaceutical giant has added 13% in just the last month. Patient shareholders, like myself, are starting to believe there is a high yield God after all.
The Key To True Wealth
In order to be a truly great, truly wealthy investor, you need to control your emotions. Warren Buffett said as much…
"Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."
The problem is, controlling your emotions is far easier said than done. Emotions are in our DNA. They make up our personalities. Without them, we'd be robots. Life would be dull, and we'd never be able to make any money out of the stock market. Be thankful.
Today, your emotions might be telling you to buy. They might be telling you the economic recovery is gaining traction. They might be telling you to buy now, before it's too late, for fear of missing out on the next big Stock Market Rally.
Just a few days ago, those same emotions might well have been telling you the economy is totally stuffed, deflation is setting in, we're headed for a Japanese style lost two decades, and it's time to sell all your shares, protect what wealth you might have left, and to buy gold, bottled water and tinned baked beans.
Look Away Now
And what's changed? Nothing Markets rise, and markets fall. Don't look at them, if that helps you make better investing decisions.
Next week they could be back in a depressive mood as some piece of data suggests the economic recovery will turn into a double-dip recession… again. Strangely enough, the only double-dip chatter I could find was Dean Maki, chief US economist at Barclays Capital, saying a US double-dip recession is "quite unlikely". But don't worry doomsters and bottled water-hoarders, the double dippers will be back.
You simply can't make rational investing decisions if you let your emotions control your actions.
I'm A Believer
You are either a believer in economic recovery, or you're not. One Big Stock Market Rally doesn't change a thing.
You're either a believer in cheap high yielding blue chips like Glaxo, like Vodafone (LSE: VOD) and like Tesco (LSE: TSCO), or you're not. Although they've jumped a bit in recent times, their dividend yields still thrash the pants off those of savings accounts and gilts.
If they were a buy on Tuesday, they're still a buy today. FTSE 6,000 anyone? Oops, there I go making an emotional, fun prediction again. Some things never change.
More on the economy and the markets:
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> Bruce Jackson has an interest in GlaxoSmithKline and Vodafone.
