We often use this analogy to explain market movements. The stock market is like a massive truck engine block suspended in the air by thousands of piano wires, swaying gently in the breeze.
There’s an elf standing on the block with cutters snipping wires, sometime on this side, sometimes on that side.
As the support shifts, the engine block may twist or swing. Imbalances may build up and reach a catastrophic tipping point. The block jerks suddenly, wires break en masse, the engine rolls violently, tossing the elf off on his ass.
Eventually the oscillations settle down, a new equilibrium is achieved, the elf climbs back on and starts snipping wires again.
An observer standing at the side knows that the longer the elf snips, the more likely a violent adjustment. But the observer never know exactly which severed wire will exceed the tipping point.Read More