AND UNIVERSAL ACCOUNTS TAKE CARE OF 2 & 3:

After studying the movements of the stock market going back to 1952 [economics professors Daniel Greenwald and Sydney Ludvigson from New York University, and Martin Lattau from U.C. Berkeley] found that nearly all of it can be explained empirically -- in other words, by observation, not merely by theory -- by three uncorrelated factors. [...]

The first is the overall productivity of the economy. Short-term variations don't matter, only the long-term trends in total factor productivity -- the degree to which the economy makes use of labor, capital, resources and so on -- make a difference.

The second is the degree to which national output ends up in the pockets of either workers, on one hand, or investors on the other.

And the third, quite simply, is fear -- or "risk aversion" in the technical parlance.

That's it.

Changes in these three factors explain 85% of the stock market's movements over the past 70 or so years -- the modern era. That's quite something.

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