We’ve got a nickname for the bear rally begun last March on Wall Street: the “Red Shoes Market”. The metaphor alludes to the classic 1948 British film based on Hans Christian Andersen’s dark fairy tale. Every cinema buff knows the story of the ballerina, played by Moira Shearer, who couldn’t stop dancing after she put on a pair of enchanted crimson ballet slippers. Eventually she danced herself to death. That’s exactly what we foresee for the stock market once the mad energy that has powered the rally has been spent. That this will occur is all but certain, since the economy, green shoots and phony recovery statistics aside, is edging toward Depression.
Like the ballerina, frenzied investors have no control over their actions. Even though many portfolio managers evidently believe it will all end badly, they cannot move to the sidelines for a breather while stocks continue to move relentlessly higher, as they have been for the last eight months. Shares have soared mainly because of the government’s innumerable bailout programs. The giveaways have produced a glut of liquidity in the financial sector that has nowhere to go but into stocks and bonds. Business loans are shrinking because both borrowers and lenders alike are skittish about taking on more debt as the economy has continued to weaken. The result is that lendable reserves have found their way into the securities markets, pushing valuations to historical extremes.
Amazing Rally
What amazes most about the rally is that it keeps on going even as the country’s economic and political future grow murkier each day. It is said that the stock market abhors uncertainty, but we can’t recall a time in the U.S. when there was more of it than now. We’ve got a dithering President whose radical domestic agenda has bogged down badly — not only in Congress, but in the heartland. And his foreign policy, while appealing perhaps to Norwegians, is making the U.S. look dangerously weak to the rest of the world. Obama’s poll numbers are slipping so rapidly that it’s arguable he’s a lame duck president after less than a year in office. The argument will be sealed if the health care proposal goes down in flames, as Americans should be praying it does.
And yet, with the U.S. dangerously adrift both domestically and abroad, the stock market has been acting as though good times are just around the corner. In reality, the lemmings of the money management world, like the ballerina, have no choice but to keep on buying until the next economic or geopolitical catastrophe hits like a bolt from the blue.
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{ 16 comments }
I wanna believe the party’s over but dollar is lower again tonight and that’s all that seems to matter. It’s all very political. More than ever it seems.
Btw that “gold never again below $1000″ call by Marc Faber last week was outrageous. He knows darn well that gold bull corrections can be huge. So what he’s really saying is we are going to the moon now and any major future downdrafts will end before we float back to $999? I love Faber but that call was outrageous.
FWIW A commenter on Ticker Forum claims Faber is highly connected with info coming from the Chinese.
How smart, well-read people naively ignore the injustice to small companies and many of our neighbors who have had to deplete their savings and even declare bankruptcy because of the unfortunate chronic illness of a loved one is remarkable in its ignorance and selfishness. No, this health plan doesn’t cover everybody and yes, it will probably cost too much, but little can be expected from politicians addicted to the campaign funds of hypocrite insurance companies who truly pull the plug on chronically ill patients. Who, if not the intellectuals, will be the voice of reason that insists that we need to come together and have positive and meaningful dialogue to ensure that all Americans have a decent health plan that doesn’t rely on the small companies who hire the majority of us? We can start by asking if American citizens should have a right to health care and if our employers should really be our health care providers? As a result of many serious issues including health care, I fear that the United States may eventually go down in history as a great melting pot of immigrants who were consumed by greed and ultimately failed by aggressively focusing on what was wrong with our little experiment rather than on how this was the best attempt of creating a nation that was fair for all its people.
The stock market is perhaps the premier place where the most grotesque fiddling goes on while Rome burns. Obama is a weak President, just as he was a weak Senator, which is why he dithers, and why, when he is not dithering, he continues to sign off on disastrous policy in support of Wall Street. Otherwise Obama passes his time as CIC by exerting himself on behalf of Nancy Lugosi’s, excuse me, Pelosi’s monstrous health care initiative. And then there is Afghanistan, where I predict he will, with a great show of the gnashing of teeth, acquiesce to military demands, even though his final, seemingly tortured, decision will have been a fait accompli all along.
Would McCain have been any better. We will never know for sure, but as I have every faith that the political system in the U.S. is fatally sundered, I doubt it strongly. And besides, you can’t have a horror like Sarah Palin in the lower forty eight, much less a heartbeat away from the Presidency.
“We’ve got a dithering President whose radical domestic agenda has bogged down badly — not only in Congress, but in the heartland. And his foreign policy, while appealing perhaps to Norwegians, is making the U.S. look dangerously weak to the rest of the world.”
Wow! I really respect your trading comments, but the above quote is so far from reality that I wonder what planet you actually live on.
America can no longer be number 1 by itself. 30 years of reckless consumerism fed by tax cuts, deficits, and low interest rates have left it all but bankrupt.
America can no longer spend 50% of the world’s military expenditures using money borrowed from foreigners (America is dangerously weak! and any foreigner who looks knows it).
The health care saga has been interesting to watch. By pushing the load onto Congress (the bodies that should be writing legislation) Obama may appear dithering to you, but he has gotten further than anyone thought he would.
While I fundamentally disagree with his approach to the banks. I think his overall approach has been far too centrist (radical? – gimme a break), driven by a desire to really try to get everyone working to solve the massive mess the nation faces.
That said don’t count Obama out. He is if anything the “aikido” master. A good friend, and my son, practice aikido one of the most interesting of the martial arts. It fits Obama to a T.
For one of the best aikido stories see this :
http://community.businessballs.com/blogs/tags/aikido/
Again, totally agree with you on the markets. The other stuff … not so much. That’s what makes life interesting.
Luis Calvo asks some good questions–troubling as they are to many Americans. But I would ask in reference to his statement:
“We can start by asking if American citizens should have a right to health care and if our employers should really be our health care providers?”
Every right has a corresponding obligation. Who has an obligation to go into medicine, work hard for years, and have the government set wage rates? Who has an obligation to produce machines, medicines and therapies that will continue medical progress? Are these obligations going to be enforced by law, as are the House-proposed insurance mandates? What’s the plan to manage doctor/nurse shortages, or rationing of services?
It doesn’t just happen that folks have rights, ergo those rights are to be respected. On planet earth, someone has to provision those rights by hard work, sacrifice and study, doing or not doing something. How do you enforce your right to health care without impinging on another’s right to ignore medicine for air conditioning repair?
We can start by asking if American citizens should have a right to health care >>>>
luis, where did you ever get that idea?
if indeed you are saying that we DO have that right.
if we were to focus less on our “rights” and more on, how incredibly most of us have blessed by God,it seems to me that we would all be better off.
how about being grateful for what we do have in stead of focusing on what we are “owed”?
especially since “thanksgiving” is right around the corner
Luis,
Are you talking about the intellectuals like Carl Marx and company who reasoned that the state could do a better job of providing for the economic needs of the Russian people? I am a little confused which intellectuals you are talking about. I would like to know who is going to control what is fair in my life before I sign on to this new experiment being cooked up in Washington.
FANTASTIC GOLD CALL!!!!!!!
Luis, I am afraid that you are incorrect, in believing in the ‘right’ of individuals to health insurance. This belief in the various ‘rights’ of individuals (health insurance, food, shelter, etc.) is causing many of the problems we see in America today. Instead of an independent, self-sufficient, personally responsible people, we have an illogical people that want bread and circus that take no responsibility for their welfare or the welfare of the country. You may wish to be reminded:
We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.
I do not believe that ‘right to quality health insurance’ was left out on accident.
Next to watching my brother shoot a prairie dog between the eyes at 2 miles,your call of 1134.90 is the next most impressive thing I have ever seen.
Luis,
Whenever the US Legislative and Executive Branches decide it is “just” to expand the list and pay for that next “right,” I realize that my long-term planning for a worthless US Dollar:
1. Has been in error–my time-horizon must be shortened and
2. Has not been in vain.
Best of luck to all.
Moot discussion on all counts. Any president would do exactly the same thing in regards to stimulus packages. Health care, like SocSec, will be welcomed when most people are frightened “they themselves” will need it.
Thats the American way. Greed, complacency, and finally empathy and compassion. It’s unfortunate that it will take a depression to get there.
Looks like my target of SPX 1150 – 1220 should be here soon. Still waiting for that elusive Hindenburg Omen.
Rick,
Nice article with good insights about the economy. Please read below for some support for your POV:
An Economy On Life Support Is Not Recovering
http://www.nolanchart.com/article5841.html
Recovery Depends on Investment and Capital Accumulation
http://www.nolanchart.com/article5905.html
Perhaps the silver non-confirmation ended today…$18 barrier was smashed.
Also Faber on Bloomberg this morning made no restatement of his outrageous gold call from last week. Guess his “gold never again below $1000″ call last week was hyperbole or off the cuff. The headlines made it look like a rock solid statement but he was talking about both bull and bear possible scenarios this morning.
And his foreign policy, while appealing perhaps to Norwegians, is making the U.S. look dangerously weak to the rest of the world.
The George W. Obama foreign policy of aggression (continued fighting in Iraq, remote controlled killing in Pakistan, more troops to fight in Afghanistan) is nothing like the Norwegians.
Are you still upset that your gun-grabbing “bomb bomb bomb Iran” wife-cheater amnesty McCain lost? Trying to think of something to good to say about Mccain… I don’t know. He has never held a private sector job.
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You know me too, too well, Frank — of course I am still smarting over my gun-grabbing candidate’s defeat. I am having trouble with your syntax, though, where you’ve tried to distinguish between “the Norwegians” and “a foreign policy of aggression”. If there are any Norwegians who are indeed like a foreign policy of aggression, I certainly don’t want to make the mistake of inviting them to dinner. RA
Rick, your analogy about the stock market (“a ballerina who couldn’t stop dancing”) is chilling and kind of brilliantly creative. The mechanism you postulated, I don’t quite understand tho. There is, you said, “a glut of liquidity,” “borrowers and lenders are skittish,” and as a result “lendable reserves have found their way into securities.” You’re saying borrowing and lending is too risky, therefore money chooses the stock market instead? Please explain and while you’re at it, this extra money you say comes from the bailouts, are you saying the money the US lent the banks, the banks are putting in the stock market? Jeeze, is that what you’re saying?
As for Obama, you call him “a dithering President who looks weak to the rest of the world.” Dithering–that’s the word the Republicans use to criticize Obama because he hasn’t leaped into the air for an all-out war effort in Afghan. You’re the one who claims, Rick, that the US is “edging toward Depression.” But no matter, huh? By God, it’s time to stop dithering and authorize hundreds of billions for war. I think you’re the one wearing the red shoes, Rick. You can’t stop dancing the war dance.
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Your war-dance metaphor could use some work, Elaine, and your memory of 9/11 some refreshing. Concerning Obama, his approval ratings are declining at the fastest pace in presidential history. Mere dithering would not account for that, but the incessant pandering to our enemies and groveling in euroland would surely have helped. RA
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