Four days. Just four days. That’s how long it took for the panglossian pundits to declare that the economic destruction that has seen trillions of dollars evaporate in a mushroom cloud of debt and derivatives is rapidly coming to an end. Last week, the S&P 500 rose 10.7 percent, recovering less than 13 percent of its total decline from 1255 in September. This sharp, but very short-term rise already has long-time permabulls such as Larry Kudlow suggesting that instead of pushing back their predictions of economic recovery from mid-2009 to the end of the year, economists should be considering the possibility of GDP growth in the second quarter.
This is fascinating, especially since in addition to the stock market’s best weekly performance since November 2008, last week also saw the culmination of the slapfight between Kudlow’s former partner-in-crime on CNBC, Jim Cramer, and The Daily Show’s comedian/commentator Jon Stewart. Stewart, who prefers to conceal his sharply liberal opinions behind a jester’s pose, nevertheless did the nation a great service in pointing out the way that televised market cheerleaders such as Cramer and Kudlow never take any responsibility for their oft-failed predictions or their incorrect recommendations.
Listen, you knew what the banks were doing, and yet were touting it for months and months. The entire network was, and so now to pretend that this was some sort of crazy, once-in-a-lifetime tsunami that nobody could have seen coming is disingenuous at best and criminal at worst. … These guys’ companies were on a Sherman’s march through their companies, financed by our 401(k)s, and all the incentives of their companies were for short-term profit. And they burned the f—ing house down with our money and walked away rich as hell, and you guys knew that that was going on.
The behavior of Cramer, Kudlow, and their colleagues in reacting to this recent market bounce, despite the complete destruction of their credibility, makes it dishearteningly clear that nothing, short of the nuclear destruction of New York City, will prevent the media whores of the financial markets from doing their best to convince Americans to keep sending more of their money to Wall Street. If they cannot obtain it directly, through stockbrokers pitching deceptive investment marketing pitches such as “dollar-cost averaging” and “buy-and-hold,” they will turn to the federal government to obtain it for them, either through indirect mechanisms such as the 401(k) or direct transfers of the sort that both the Bush and Obama administration have executed.
The reality is that no long-term investor has made any money in the stock market since 1997, and since market prices are not indexed for inflation, there has actually been no net capital profit in them for the last 14 years … and this is not even taking into account the fact that the composition of some major market indices are modified as often as once a year. Wall Street is rather like a shark; it depends on a constant inflow of money if it is to stay healthy, which is why its cheerleaders are always so desperate to keep Americans gambling by investing in it. But what is good for the predator is very seldom good for the prey.
What is important to remember is that no market ever goes straight up or straight down. Even during the great Greenspan bull of the 1990s, there were the occasional down periods. And, in every bear market, there has been the occasional dead-cat bounce and optimistic rally attempt. For example, last week marks not the first, not the second, but the fifth large rally on the Dow since it began falling in earnest back in late 2007.
History strongly suggests that there will be an extended market rally taking place in the near future. This may be the start of it, or there may be, as the Elliott Wave technicians believe, one more down-leg before the counter-trend rally starts. But regardless of what the markets do, it is important to keep in mind that they are not the economy, and inflated prices of anything, from candy bars to blue-chip stocks, are not the same thing as economic growth. Both the monetary authorities and the fiscal authorities are now operating in full inflationary mode, which as we know from the Great Depression and a host of other historical examples, is liable to extend rather than end the economic crisis.
There’s nothing wrong with hope. It is an excellent quality. But acting on the basis of false hope rather than observable reality is a recipe for disaster, for individuals and nations alike.
