I’ve posted Entry #20 to my Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called It’s the Stock Market That Drives the Economy, Not the Economy That Drives the Stock Market.
Juicy Excerpt: The reason why Buy-and-Holders see it this way is that Buy-and-Holders believe that stock prices are always set properly. If the market price is right on January 1 and the market price is right on February 1 and there is a big difference between the market price that applies on January 1 and the market price that applies on February 1, there has to be some explanation for the change. The explanation that the Buy-and-Holders turn to is — the economy did it! The economy is always changing and so pointing to the economy is a great way to explain changing stock prices. However, if you think this through carefully, I think you’ll see that stock prices should not change so much.