A Moratorium on Optimism?
By ALAN ABELSON
"Maybe it's time for a respite from knee-jerk bullishness... the sudden burst of mass disenchantment was rooted in a kind of exhaustion of bullishness. Investors have been worn out responding to false sightings of bottoms and have gradually and somewhat grudgingly experienced a kind of epiphany as to the true, dismal state of the stuff that drives markets higher. Stuff like corporate profits, which are shrinking rather alarmingly (and, in the process, dangerously inflating P/Es), to consumer confidence and consumer wherewithal, both of which, not unrelatedly, have been badly mauled."
In the months leading up to the Black Thursday of the Crash of 1929, the markets experienced a series of terrific ups and downs that 'left everyone feeling exhausted.'
There is a significant amount of uncertainty with a strong undercurrent of fear. How bad will it be? Which banks are insolvent? Why aren't the normal indicators working? Why does reality feel different from what the government numbers are reporting?
At the same time, stocks are divorced from fundamentals so they are 'trading like commodities.' The big players watch the short and long interest, and run raids against the smaller players and funds. There is a cynical ruthlessness prevailing in the US markets that is the result of extreme lapses in regulatory oversight mixed with a surfeit of hot money with no particularly productive places to go. So it roams the exchanges in search of a quick buck.
We're setting up for a rough time fraught with uncertainty. This implies widening spreads and wild swings.
Asking the market to tell us what is coming now in the real economy is going to be tough, because the market doesn't know whether eat soup or jump out the window.
