Monday, March 08, 2010

Stocks and the wall of ennui 

Stocks are up 70% or more since their lows of almost exactly a year ago in the face of much less impressive improvements in the economy. Indeed, it is an old chestnut that bull markets "climb a wall of worry," meaning that they rise as long as people remain worried about the future. Following that logic, you should sell when optimism becomes pervasive. Of course, you will leave money on the table, but take comfort in the first Baron de Rothschild's response when asked how he had built such a great fortune: "I always sold too early."

In any case, there is a variant on this theme afoot, and people do not quite know what to make of it. Investors are gripped by unreconstructed apathy, which seems to suggest that stocks are climbing a wall of ennui this time. Whether that is more or less bullish than "worry" is for the professionals to decide. Assuming, that is, that you trust the wisdom of the stock operators.


By Anonymous Dr. Mercury, at Mon Mar 08, 11:37:00 AM:

OT: No comment on my answer to the Great Avatar Feathers Question (GAFQ) the other day? Long has the GAFQ puzzled mankind's greatest minds, but that's because they didn't have the DVD, freeze-frame and a magnifying tool at hand. I'm thinking of making a Maggie's post out of it (complete with video!) but I'd like to hear your reaction first.  

By Blogger TigerHawk, at Mon Mar 08, 11:54:00 AM:

I did read it, and if you say that on freeze-frame day ain't fedders, day ain't fedders. So run with the post and I'll acknowledge your greatness with a link back.  

By Anonymous The Truth is Out There, at Mon Mar 08, 01:10:00 PM:

This may be too simplistic. There's a lot of liquidity right now and few good places for it to go. For all our troubles, most of the rest of the world looks worse. So buying stock in a US company with relatively solid cash flows has less long-term risk than holding Treasuries and corporate debt. Maybe this is why Buffet just bought a railroad for $44 billion.

ps. Buffet makes his biggest deal ever -- and it's just a month's worth of mad money to Nancy Pelosi.  

By Blogger Charlottesvillain, at Mon Mar 08, 05:09:00 PM:

Wall of worry? More like a gusher of taxpayer dollars the likes of which the world has never seen, combined with zero interest rates that leave few alternatives for investors. A suckers rally if I've ever seen one.  

By Anonymous Anonymous, at Mon Mar 08, 05:48:00 PM:

Yep, CV called this one. I call this The Last Bubble, blown by taxpayer dollars and ultimately supported by the Treasury and the currency.

We're in a real pickle now. Withdraw liquidity and raise rates and the stock market should collapse.

All we can do is keep blowing hot air into the balloon and hoping that Europe and Asia melt down faster than we do, thereby driving capital into the U.S.

Heckuva job, Bammie.  

By Anonymous Anonymous, at Mon Mar 08, 07:24:00 PM:

Here's my wall of worry- new problems stemming from crazy government policy decisions (and it's not like we don't have enough problems already!). Fiscal craziness (and the Democrats huge tax increases) will kill us a lot faster than monetary stuff the Fed has been doing.

If the Fed is worried about the possibility of future inflation, due to the massive liquidity infusion we've had to make in order to counteract the decline in velocity, then can't they just increase gradually required reserve rates? Managed properly, that could have the effect of reducing liquidity in lockstep with a return in velocity.

As I said up top, I'm not as worried about the Fed as I am about fiscal policy. The Congressional Democrats are insane, and them passing this enormous new entitlement is a real possibility.  

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