Markets are driven entirely by emotion

Most economists and market commentators completely misunderstand how markets work, says John C Burford. What really drives markets is emotion. Here, he illustrates how.

It still amazes me that even respectable economists completely misunderstand how markets really work.

I can excuse this in mainstream media commentators (whose job depends on conforming to received wisdom') and the general public, but when I read this in a recent article by Liam Hallligan in the Telegraph: "The US housing market is at its most buoyant for seven years, with real estate prices up 10.9% in March. That's helped to drive consumer sentiment to a five-year high", I react just as I do when I spot a greengrocer's apostrophe (Banana's £1).

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$5 X DJIA INDEXRow 0 - Cell 1 Row 0 - Cell 2 Row 0 - Cell 3 Open interest: 115,832
Commitments
42,8487,54813052,14086,43095,11894,10820,71421,724
Changes from 21/5/13 (Change in open interest: 711)
2,146-977-876-1,1842,46786685157-1,988
Percent of open in terest for each category of traders
37.06.50.145.074.682.181.217.918.8
Number of traders in each category (Total traders: 98)
3312533296745Row 8 - Cell 7 Row 8 - Cell 8
Swipe to scroll horizontally
NIKKEI INDEX X JPY 500Row 0 - Cell 1 Row 0 - Cell 2 Row 0 - Cell 3 Open interest: 93,321
Commitments
35,1296,7252,91642,70930,44580,75440,08612,56753,235
Changes from 21/5/13 (Change in open interest: -2,268)
-2,846-2,5931,465-4,162-5,915-5,546-7,0463,2784,778
Percent of open interest for each category of traders
37.67.23.145.832.686.543.013.557.0
Number of traders in each category (Total traders: 100)
3012542267342Row 8 - Cell 7 Row 8 - Cell 8

John is is a British-born lapsed PhD physicist, who previously worked for Nasa on the Mars exploration team. He is a former commodity trading advisor with the US Commodities Futures Trading Commission, and worked in a boutique futures house in California in the 1980s.

 

He was a partner in one of the first futures newsletter advisory services, based in Washington DC, specialising in pork bellies and currencies. John is primarily a chart-reading trader, having cut his trading teeth in the days before PCs.

 

As well as his work in the financial world, he has launched, run and sold several 'real' businesses producing 'real' products.