Why Are The Poor So Spend Happy?

We're in the mist of the mid-day trading session and I can't help but to noticed the amount of advancing stocks. The DOW is up, the S&P 500 is up and NASDAQ is advancing (http://finviz.com/). Normally this correlation doesn't startle me in today's market, however after reading the poor economic numbers that blew past analyst estimates, it does.

International Trade smashed through census estimates at -32.5 billion coming in at -36.5 billion. The U.S. year over year exports dropped 3.4%. Natural gas inventories dropped to 25 billion cubic feet from 29 bullion cubic feet. Finally, consumer sentiment plummeted! Annihilating census estimates of 71.0 coming in at 66.0. However, the market is up! (http://www.bloomberg.com/markets/ecalendar/index.html)

I relate this to bad psychological defense mechanisms. There is no fancy title for this pathology, plain and simple, it's over compensation (some may call it reaction formation [that's a fancy title]). In other words, since the reality of the situation is to harsh to accept (consumers feel terrible, inventories are down, large possibility of low holiday spending) we create an alternate reality/feeling that is much easier to accept. In this case, poor economic numbers indicate an unacceptable reality so the market is now over compensating by buying up more assets. Unfortunately, this is not the TRUE reality of the situation, only a pathological defense.

In short, stocks going down would be an appropriate response to such bad news, stocks going up after such bad news, is simply pathological.