In This Market, Pay Attention to Investor Perceptions

George Soros is one of the greatest investors of all time... Soros has a fascinating life story. He was born to a Jewish family in Hungary and survived the Nazi occupation of Europe, went on to study at the London School of Economics, and then started one of the first – and most successful – […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] In This Market, Pay Attention to Investor Perceptions By Enrique Abeyta --------------------------------------------------------------- [A big warning for all Americans]( For months, all you've heard is doom and gloom regarding the U.S. economy. And yes, things might get even worse. But right now, a rare window has opened in the stock market that allows ordinary investors to buy stock shares in well-known companies at venture capital-like prices. However, this situation only appears during bear markets. So your chance to get in is shrinking as you read this. [Click here to get our full briefing on what this rare opportunity means for you](. --------------------------------------------------------------- George Soros is one of the greatest investors of all time... Soros has a fascinating life story. He was born to a Jewish family in Hungary and survived the Nazi occupation of Europe, went on to study at the London School of Economics, and then started one of the first – and most successful – hedge funds, eventually called Quantum Fund. Soros has always taken a particularly scholarly approach to investing, especially when looking at how psychology influences the market. His most famous insight is something he calls 'reflexivity' in the markets... Reflexivity is the concept that investors' perception of the future can actually influence it. This insight was originally based on a principle of physics that was identified by German physicist Werner Heisenberg, who noted that the act of measuring certain subatomic particles had the impact of changing their actions so that precise measurements could not be achieved. Soros saw this idea and argued that something similar could happen in economics and the markets. For example, if consumers are worried about economic conditions and decide not to spend, overall economic activity drops as a result of the lower spending, resulting in a recession. There might not have been a recession if consumers hadn't become pessimistic... But their negative views actually created the negative outcome. In markets, a great example is what can happen with banks or brokerage companies. These companies usually are extremely leveraged, holding a fraction of what they have lent or have outstanding in the market in cash. However, if enough people perceive there is danger, there may be a run on the bank. This happens when everyone wants to get their money back at the same time. This forces the bank or brokerage to sell assets to give people their money back. If this happens during a difficult market, the bank or brokerage may not be able to return enough money and will go out of business. Soros liked to identify potential situations where reflexivity could play a role and then figure out how he could take advantage of them. --------------------------------------------------------------- Recommended Link: [New Vehicle Shocks EV Market]( The Wall Street Journal calls it "an American manufacturing triumph." – [Will this disrupt the entire $1.3 trillion EV boom]( --------------------------------------------------------------- These situations are rare, but if they can be identified, they can be extremely profitable... We don't see any of these happening right now in the global markets, but this concept got me thinking about the role of perception and expectations. This is particularly interesting considering the most recent stock market rally we've seen across the past month. Not much has changed about the fundamentals since the markets were crushed a few months ago. Aside from some recent relief, inflation is near 40-year highs. Job growth continues to be good, although a bit choppy. Net-net, economic indicators show some slowdown and an overall mixed picture. This mixed picture is similar to what happened in the first half of 2022... So what changed in July and August to make the stock market respond so differently? The answer is expectations. In the markets, it's not necessarily important what the data are... but rather what investors think the data are going to be... Now – to be clear – it does matter what the data are when you're in transition points. Big negative gross domestic product ("GDP") numbers will always have a negative impact on earnings and the stock market. After a point, though, the absolute result matters less, and investors' expectations matter more... Think of it this way... Let's say a garbage truck drives by your house every day at 5 a.m. and wakes you up. This happens for months and months and drives you crazy. Then, one day, the truck drives by your house at 5:30 a.m. That's still unpleasant, but you get an extra 30 minutes of sleep that day and you're probably over the moon! The same could be said for markets. The recent 8.5% rate for inflation is still sky high, and if inflation persists at those levels, it would be a material negative for the markets. In the near term, however, seeing a number that was lower than expected for the first time in a long time excited investors. In this case, many investors may be extrapolating that lower numbers will continue, like I argued in the [August 12 Empire Financial Daily](. That would be good for the market over both the intermediate and longer term. Regardless, in the short term, all that matters are those expectations... Again – as Soros argues – people's perceptions of the world can often define outcomes. And in this market environment, we're seeing plenty of short-term trading opportunities in my Empire Elite Trader service. As long-term winners suffer pullbacks, this creates a great opportunity to buy shares at a discount – betting on investors coming to their senses and these stocks rebounding. In fact, we just identified another one yesterday... Learn how to gain instant access to this brand-new trade [right here](. Regards, Enrique Abeyta August 18, 2022 --------------------------------------------------------------- If someone forwarded you this e-mail and you would like to be added to the Empire Financial Daily e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. 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