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European economy, not global turmoil has markets worried

Historically one of the worst months for stocks, August of 2014 has defied expectations. The S&P 500 (^GSPC) has already rallied more than 3% for the month despite military escalation in Syria, horrific video threats from sworn US enemies and the naked contempt of Russian thug-dictator Vladimir Putin.

To investing lay-people and the general public it may seem like the market is being fueled by international turmoil and civil unrest. As OptionMonster’s Jon Najarian says in the attached video, the truth is that stocks are simply myopic when it comes to world news. There’s borrowing costs, consumer spending and a bunch of other stuff that doesn’t really matter.

Rule one of stocks is that markets hate uncertainty. Rule one of humanity is that there is evil in the world, the only question is how much attention we are paying to it at any given moment. You may be appalled by the actions of Putin but is there anything in the man’s history to suggest he would do something other than that to which the U.S. would object? From a Russian perspective the most likable thing about Putin is his willingness to stand in opposition to the West.

If anything, the stream of atrocities flowing over the wires was comforting in its predictability. We live in a fallen world and stocks are at all-time highs. This is hardly an unprecedented situation.

What would concern Najarian is a European recession spilling into Germany. France “just tossed their entire government,” as Najarian puts it and there’s a delicate balance of sanctions and saber rattling acting as an eternal headwind for growth. Were these things not the case traders would be baffled. As both recent and distant history suggests, buying the tension is the best investing strategy.

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