Talk about irrational exuberance!  If yesterday’s seismic eruption of giddiness on Wall Street had happened in, say, Kabul, we’d have seen Taliban revelers launching bottle rockets from the rooftops and dancing horas in the streets. We searched in vain for an explanation but found only a depressing report on June U.S. retail sales. We somehow doubt that the 2.7% drop reported by Macy’s could have stirred up investors so and caused the Dow Industrials to surge to their biggest gain in years.

What then?  Our guess is that it was simply the “Zimbabwe Factor” that we've mentioned here earlier operating at full strength. Recall that Zimbabwe, with an economy and life expectancy (34 years!) that rank as the absolute lowest in the world, has the hottest stock market, up fifty fold in the last twelve months. 

(Click on Arnold's bicep to enlarge)

And so it goes here in the U.S., albeit on a far larger scale. With interest rates on the rise, our debt-glutted $12 trillion economy resembles nothing so much as a gargantuan Zimbabwe in the making. If so, who could blame Wall Street for a little premature celebration?  After all, if there’s going to be a Second Great Depression when $400 trillion of global debt de-leverages, as it absolutely must, why delay the celebration until the economy becomes so Zimbabwean that we won’t be able to enjoy it?

50 Million Bad Bets

Whatever it is that investors are so enthralled about remains a mystery to us. Could it be the deepening housing recession?  The imminent collapse of consumer spending?  The train wreck toward which debtors are racing while steeply rising real rates continue to eat away at micro economically fatal bets made by fifty million households?  Could it be the increasing likelihood that oil will hit $100 a barrel?   We don’t need to be reminded that there is nothing the stock market loves more than climbing a wall of worry. This time, though, it feels more like a scramble up Mt. Everest.

(Click on chart to enlarge)

For our part, we put out a short yesterday in the Mini-Dow – a bad idea that survived mercifully less than a minute, as the chart above shows. Our fleeting act of boldness puts us in mind of the climactic scene in Butch Cassidy, where Butch and Sundance emerge from their lair, eager to shoot it out with a posse. Little did they know that half of the Mexican army was lying in wait, muskets ready to discharge a hailstorm of lead.  Considering the fate of Butch and Sundance, we should ask ourselves if we might be shorting into a Dow rally that eventually will reach 35,000, as has been predicted by some whom we have hitherto regarded as imbeciles, hoaxers and self-aggrandizers? 

Far be it from us to assert that it can’t happen.