Whichever way the anchor said it, it meant the same thing - rising oil prices are bad for the stock market. The often unspoken rationale was that because nearly everything we buy has to be freighted, and all transport uses oil, so rising oil prices force up the price of everything, and unless companies can pass those increased costs on to the consumer, then corporate profits are going to be lower and so their share price gets marked down. Gas prices rise and rise, and even if the producer can pass the higher cost on, this forces up prices and therefore inflation and probably interest rates, and so the consumer will have even less money left to spend and so corporate sales will fall and so will profits and so stock prices are marked down, etc. etc. Whichever way you "explain" it, higher fuel prices are bad for the share market.

Sounds familiar? Sounds right? Ever question that? Perhaps you should have, because it is totally wrong. Huh?

In October 2002 crude oil was around $25 a barrel. Three years later the price of black gold had almost trebled to $70 a barrel in August 2005, just before Hurricane Katrina hit. How much did the share market fall in that three year period? The Dow Jones Index and the S&P 500 rose about 50% in that time! The NASDAQ almost doubled, albeit from a low base.

So much for the notion that rising oil prices are "bad" for the stock market! It's a nonsense. How come we were so misled? How come we didn't even notice? Maybe you would be horrified if you knew how many other investment "myths" you believe, because of what you have been told by "those who should know," that are actually wrong. In fact, back to front, like this one.

How come economists (who provide the information for the media) get it so wrong? And if they can't even get it right after the event, then what chance have they of forecasting the future?

The answer is next to none at all. They miss the point altogether. They put the cart before the horse. They believe that "events" govern mood. That is, some economic "event" (like the rising oil price or a change in interest rates or inflation or GDP) causes people to "react" and thus go and buy or sell shares accordingly. Or it may be reaction to a geopolitical "event" in the "news," such as a fresh outbreak of hostilities in the Middle East or a terrorist attack. All they can do when forecasting is to use their econometric models to extrapolate current and past data into the future, without making any allowance for change in sentiment.

Conventional wisdom is back to front. Mood governs events not the other way around. When humans gather together in a group (crowd, herd, etc.), that collective takes on a personality separate from the individuals who make it up. And the behavior of that "herd" has a distinct pattern to it. It morphs between optimism and pessimism in waves that are as regular and reliable as the tides and moon phases. This is what we can learn from the new science of socionomics and a study of the Wave Principle.

Once you grasp this new insight, you realize that the change in mood comes first. The change in economic fundamentals and even geopolitics comes later, as a consequence of the change in sentiment. The great news is that we can know in advance when the change is due!

The Graham Dyer Newsletter has not missed a month's publication since July 1983. His track record for forecasting is the envy of many, including the 1987 stock market crash, the demise of the Japanese economy and stock and real estate markets in the 1990s, the bull market for bonds from 1989, and the real estate boom this decade. His book is entitled: "How to Profit from the Coming Great Depression." If you want to know the pitfalls of investing as well as the opportunities, Graham Dyer’s world class work is a must read. For more of Graham's work you can visit his Blog at grahamdyer.com/blog