Watching the Dow Industrial Average cavort in the thin air above 12000 while the world goes to hell, we’re reminded of the famous exchange between Senator Joseph McCarthy and U.S. Army counsel Joseph Welch during the Army-McCarthy hearings: “Have you no decency, sir?” asked Welch after the Commie-baiting McCarthy had smeared a junior lawyer from Welch’s firm with a ruinous accusation. We might ask the same question of the decision makers who in recent weeks have been driving stocks higher no matter how grave the news or world-shaking the event: Have you, the Masters of the Universe, no decency? Apparently not — at least none capable of registering even a mote of doubt or concern about what is going on in the real world. Granted, there was a fleeting loss of confidence in the literal wake of March 11’s epic earthquake and tsunami. Some investors wondered how global manufacturers would fare with their most important supplier of just-in-time parts out of commission. Others grew nervous that Japan’s very financial stability was in jeopardy. But it didn’t take long before such anxious speculation gave way to the sunny notion that it would take vast quantities of capital investment to rebuild Japan. Ka-ching!
That was more than a week ago. Since then, Japan’s predicament has grown increasingly menacing. Radioactive waste is spilling into the sea, a reactor containment vessel appears to have cracked, and there is no longer even a timetable for fixing the problem. Will Geiger counters in L.A. have to go crazy for Wall Street to at least act as though all of this matters? And it’s not as though Japan’s problems were the only thing threatening to tilt the world off its axis economically and geopolitically. In Egypt, jihadists appear certain to carry the day, negating what little chance existed for the U.S. to prevent a major war in the region. And in Libya, allied incursions to help the “rebels,” whoever they might me, seemed likely to provoke Col. Kadhafy into doing something terrible and desperate.
And yet, stocks have continued blithely higher, rallying on seven of the last eight days. They were ascending Sunday night as well, not so much predicting a felicitous turn in the news as demonstrating that, whatever Monday’s headlines, it could not matter less. Whence comes this arrogant certitude? Not from the decision-makers, to be sure; for in fact, they long ago ceded all trading decisions to algorithm-driven machines with a bullish bias. How many times have we seen the index futures waft higher overnight in thin trading, only to have the “real” averages catch up at the opening bell in the controlled chaos of high-frequency trading? So reliable has this sequence of events become that it has literally become hard-wired into the markets themselves. Stocks have become intoxicated with easy money, revved up like a Lamborghini driven by a guy with a blood alcohol level of 3.0. The heedless, suicidal ascent of shares has become so blatant that even CNBC’s talking heads no longer try to reassure us that stocks always climb a wall of worry. No such thing is happening here, and everyone knows it. Stocks are climbing simply because making them climb has become the obsessive concern of a central bank that long ago exceeded the threshold of reckless desperation. At 220 mph, the Lambo is headed into a tight turn with no brakes.
(If you’d like to have Rick’s Picks commentary delivered free each day to your e-mail box, click here.)