When all you read is gloom, turn here for a much different perspective.

Tuesday, March 10, 2009

The Tipping Point and Good News Matches

The rally in stocks on Tuesday was significant. Have we reached a tipping point? Perhaps. And here is why.

The book "The Tipping Point", by Malcom Gladwell should be on your reading list. It frames the world around you as events that sometimes converge without many people giving notice until that confluence of small changes sets the stage for drastic change or actions.

The picture on the front cover is a match. The implication? How one small match can start a huge forest fire. If the conditions are just right. Those conditions may be building for days. Maybe even years. And then for 2 months straight, there is no rain. And the wind kicks up... and it's the small match that ultimately ignites the blaze.

Using another example, Gladwell says that the tipping point "is the name given to that moment in an epidemic when a virus reaches critical mass. It's the boiling point. It's the moment on the graph when the line starts to shoot straight upwards. The Tipping Point is an examination of the social epidemics that surround us."

What we will likely see in the stock market for the foreseeable future are just such events. The economic positives have been pouring in since early February. Not many folks have taken note. But you have.

What was the match yesterday? It was quite simple really. Three statements:

1. Citigroup's CEO gave traders hope that much of the crisis with top banks is behind us. Citi may actually post a profit this quarter, after a string of massive losses.

2. The Federal Reserve Chairman made a very strong statement that "the US will recover from this recession."

3. And House Financial Services Chairman Barney Frank said he believes the SEC may reinstate the uptick rule as early as next month. The rule is designed to help prevent traders from adding to the momentum of falling stocks.

Gladwell continues, "Epidemics behave in a very unusual and counterintuitive way. Things can happen all at once, and little changes can make a huge difference. The Tipping Point is a way of making sense of the world, because I'm not sure that the world always makes as much sense to us as we would hope."

You've consistently read now that the economic contraction is slowing; that retail sales are firming, commercial credit is no longer frozen, and that many other positives are building and actually hitting the mainstream media. There is no doubt that recovery is somewhere on the horizon and as further "good news matches" are used on Wall Street, those catalysts will likely just ignite more waiting fuel for the fire.


  1. The Tipping Point is an awesome book (also good by Gladwell, Blink and Outliers).

    That is a great point though. Usually when a Tipping Point occurs it also confounds the "experts" and most of them are usually behind the curve.

    Keep up the good work!!!

    Tuesday Ramblings

  2. Great way to describe the point we are reaching. Plus, no one is able to predict the incredible periods of innovation and growth that follow these tipping points. For example, during and after the recession of 1990-91, the "experts" were predicting years of stagnation and decline to follow. Instead, we got the dot-com boom, and full employment to the point where companies were begging people to come work for them!

  3. Tuesday and Joe,

    Thanks for the comments.

    Here's to a tipping point that confounds the experts and leads to the next great wave of innovation...



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