Political Calculations use quantum theory to explain stock market fluctuations. New energy for future growth seems to be instantly incorporated into the stock market valuations, but energy release from the market upon bad news seems to require decay over time. They cannot figure that out. Let me help.
When the stock market gets news indicating greater forward earnings in the future they expand the portfolio in dimensionality, the number of eigenstates, the components that make up earning increases. The Fed is the light source that adds energy to the market, and its parameters are well known. When the Fed announces a taper, the original apportion of energy losses over time is unknown. Why are losses a discovery process but gains are not? Or as Buffet would say, why do we have to wait for the tide to ebb before we know who has no pants?
Because of shorts. Investors bet a forward drop in stocks with a promise to sell at a lower price in the future. But investors incorporate good news about the future today. So on a loss of energy the shorts are queued up and processing them takes time.
Political Calculations and those holding shorts have an incomplete knowledge of the entire economy. So, upon bad news, the models have to sort through the allocations of losses by discovery. Losses made go anywhere, including back into the market. Who knows the loss allocations until they unfold.
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