The risks are still outside the bourse

At the beginning of this year I noted (in my classic note book in regard of the world markets but focused still on Europe) the following:

I expect strong performance of the stocks, because everything speaks for undervaluation of the market: stable economic development and stable technical conditions.

The fact that the economic situation and moves on the stock exchange do not develop parallel must be here very clearly stated: this is somewhat complicated relationship, which often drives both - stock markets and real economy - even in opposite directions. I have not overlooked it.

Though:

If risks exist - I wrote at that time - they are "outside" the stock exchange, perhaps in the economy, the politics, on other markets (e.g. commodity markets) etc. If something goes wrong there, we will certainly get to feel it at the stock exchange too. But this is not so dangerous, because - after my consideration - with this valuation level (inclusive bond yields) and the other technical and psychological factors stocks are on a relatively firm soil: without exaggerated risk positions, exaggerated speculation, without illusions...

The risks may stay in the economic development, in dangers of the terrorism or whatsoever - as long as they are not "in stocks themselves", nothing is so dangerous. Everyone already made the observation that the discussion (and reality) of the economic cycles goes for about few per cent points growth or decrease; with the profits and other company numbers these fluctuations are carried into a scale higher; at the stock exchanges however the volatility is a multiple of all that. If only the fundamental data would count and the valuations of the enterprises were to some extent consistently, rationally and comprehensively determined, then (logically) the prices might vary not so strongly. But the stocks are subject to something other prniciples. They load up themselves frequently with illusions or skepticism, with emotions and also technical factors, under whose influence the volatility rises disproportionately to the underlying data.

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I still "would sign" all of this today. The big bullish movement did not come in such a way, as I expected, but it is still some time up to the end of the year (and in addition I find it ridiculous to hold on too much on calendar years).
A little more confidence has build up however - and it'’s no wonder after all periods of weakness and concerns that we have nevertheless overcome. Slowly, the undetermined get also more confident. Nevertheless: I may not be able to calculate properly or I overlook something very important, but I cannot see even little growth priced in the stocks for a mid-term investment period. Therefore, I suppose: should the world economy (and particularly the USA) cool off, we'll may feel it in the stock prices. But there isn't much air there; if we should fall more sharply, it ought to be not just cooling off. It ought to be a crisis. That risk I can bear.



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