I realize for many readers the notion that the markets are driven by changes in our confidence level, rather than external, exogenous events, might be difficult to believe—particularly as it turns most financial news media cause and effect on its head. I also appreciate that for some the idea that what we think is logical is somehow tied to mood and, therefore, subject to constant change may also be disturbing. And I am sure, too, that there are more than a few economists who might be bothered by the notion that we and the markets are rarely, if ever, rational. But the consistent, repeating patterns of near-identical, concurrent behaviors across social movements, politics, and financial markets—even the arts—over long periods of history suggests that there is something else, beyond events, that underlies our actions.
As Mark Twain put it, history may not repeat, but it certainly rhymes.
I believe it all ties to confidence, and in Chapter 2, I tackle how and why that is the case.