The American Spectator : Alice's Stock Market

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Alice’s Stock Market

By Ross Kaminsky on 6.15.12 @ 6:09AM

It’s having banner days like yesterday for all the wrong reasons.

As a financial markets trader, it’s hard for me lately not to feel that we’re living in a Lewis Carroll-inspired stock market. Stock prices often move counter-intuitively, and with large price swings that have the distinct smell of “momentum traders” rather than results of true fundamental changes in the U.S. or worldwide economy.

Stock prices frequently go down on decent news and up on weak economic news. It is not without reason, however: traders hope that bad news will force the Federal Reserve into yet another feckless but asset price-inflating round of “quantitative easing.” It is indeed an Alice in Wonderland market (or perhaps an Orwellian one) when good news is bad, and bad is good. A bad employment report pushes stocks up, and a strong GDP report (not that we’ve had one lately) brings out the trading Queen of Hearts screaming “Off with their heads!”

Markets also move wildly on vague rumors or news about central bank activity, as if the actions of a few self-styled economic geniuses will save Europe’s economic bacon, as if the wolves who smell the blood of decades of social welfare mentality and accompanying deficits and debt can be defanged by waving a magic wand and using words designed to impress and confuse the ordinary citizen.

Thursday was such a day, with the Dow Jones Industrial Average rising about 155 points on rumors that, as Reuters put it, “major central banks are preparing coordinated action if the results of Greek elections this weekend lead to turmoil in financial markets.” The rally was despite weak U.S. economic news in the morning, and a downgrade of Spanish debt to near-junk levels by a major ratings agency.

But is more central bank paper-pushing really something to get excited about? Will you go out to dinner or take out a loan to buy a new house because the European Central Bank is providing liquidity in the face of Greek idiocy? (For the record, I predict that the Greek election will result in a reasonably strong governing coalition in favor of staying in the Euro and continuing some degree of “austerity.”)

Britain led off the Thursday buying frenzy by announcing that it would loan money to English banks at below-market rates if the banks would lend to businesses. Just as with “QE” in the United States, this move may serve as a temporary boost to asset prices… but little more. But haven’t we seen this movie before?

The problem is not that banks don’t have capital to loan. It is that loan demand is weak because entrepreneurs have little interest in business startup or expansion. Who wants to take risk when the short-term future is so likely to be a chaotic mess of politicians playing politics while bankers wallow in the Keynesian muck, each enabling the other to add more inflation risk to the economy and more debt to our children and grandchildren?

A metaphor often used in finance to describe plans like what Britain announced yesterday is “pushing on a string,” something that was tried for more than two decades in Japan without success, and for a recent few years in the U.S. with equally limited results: great for investors in government bonds, a waste of time and money for the rest of us.

Sadly, central bankers are no less susceptible to Hayek’s “fatal conceit” than are senators or presidents, and perhaps more so. After all Federal Reserve Board Chairman Ben Bernanke is a “scholar,” a “historian” of the Great Depression; he teaches courses to wide-eyed college students who fawn in the presence of such greatness and wisdom, his actual job performance and refusal to be guided by results rather than theoretical models notwithstanding.

George Osborne, the British Chancellor of the Exchequer (roughly analogous to our Treasury Secretary except that Osborne has not been shown to be a tax cheat), understands that more government borrowing poses real risk to his country and is a committed budget-cutter and opponent of the burgeoning welfare state. But once in power, it is difficult even for him to avoid attempting to use aggressive monetary policy tools to avoid the unavoidable storm that decades of fiscal malfeasance are raining down across Europe, with the U.S. soon to follow.

Even Angela Merkel, the princess of European austerity, may be pushed into a “growth pact” by pressure from other European nations (particularly France’s new Socialist econo-moron president, François “lower the retirement age” Hollande) and from domestic politics. Merkel seems likely to go along with a German financial transaction tax that will do great harm to her nation’s financial markets and German companies’ ability to raise capital, while driving millions or billions of dollars of business into the waiting arms of the City of London. But what is she going to do when her party keeps losing regional elections and the head of the German Green Party proclaims confidently that “the Europe of austerity is ending”?

When most Europeans talk about “growth” they usually mean — as Barack Obama does — the growth of government. With their plans drifting that way, with even conservative bankers desperately pushing on a string, how can stock markets put on a big happy face? After all, whether it is a “growth pact” or coordinated bank action, the real message is not that there’s a new sheriff in town but rather that their economies are dangerously fragile — as are therefore their political careers.

But all is not lost, at least not here in the United States. And even though stock buyers today might be wrong tomorrow or next week (following Sunday’s elections in Greece and the results of Spanish banks’ “stress tests”), they will probably be right soon — even if for the wrong reasons. American institutions have cut their exposure to European debt, so direct contagion from turmoil across the pond will be limited. This is not to say that there won’t be some panic here if a major European bank or government fails, but rather that the panic will probably represent a buying opportunity in U.S. stocks.

Furthermore, to the extent that people fear credit or liquidity risk in dealing with European companies, they’ll look to American suppliers; despite a modestly strengthened U.S. dollar, American exports will not fall as much as one might expect during a time of economic turmoil.

Our hope in the United States, the thing that can make Thursday’s semi-rational stock buyers look smart in the long run, is that we are not Europeans. Despite the wishes of President Obama and the views of his friends in Manhattan and Hollywood, Americans do not aspire to a massive, bloated social welfare state where success is defined by what percentage of the citizenry is in a public sector union.

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About the Author

Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver’s NewsRadio 850 KOA at 11 AM on most Sundays. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.

Letter to the Editor View all comments (59) | Leave a comment Leave a comment

Jack in Wi| 6.15.12 @ 6:45AM

This is a pretty good essay. I think I agree with most of it. This market seems to be being held up by smoke and mirrors. The picture of Bernanke above says it all. By the way what is Romney going to do to change all this? This is an honest question. Romney-Obama, Hollande, Merkel, Cameron, and the guys from Goldman Sachs who run the European PIGS. The future of the world's economies is not in good hands.

aware| 6.15.12 @ 7:00AM

Ross, the "market" is nothing more than a reflection of central bank manipulation. Period. A guppy is a fool to swim around in shark infested waters. Just buy miners and physical and get out of the rigged casino. Hopium only goes so far.

Von Mises Jr| 6.15.12 @ 7:10AM

Excellent article Ross. But I would beg to differ that the banks are not lending. They are lending to "little Timmy" Geithner. They borrow from Ben "The Bank" Bernanke at .002 and lend it to Timmy at 2-3% coupon rate. It is like an "all you can eat" buffet.
We have investors and seniors getting negative rates of return since real inflation may be as high as 10% while interest payments on deposits are zero. And we have people with existing debt that cannot get refinanced. My relative has a beach house with an 8% mortgage and the bank laughs when he asks to refinance at 3.5%.
Your analogy is great with "Alice in Wonderland" as we keep asking these clowns "Who are you?" Obama is alleged to be a Constitutional Professor that was an Alinsky "Rules for Radicals" Instructor. We still don't know what the Czars do and how much they get paid after 3.5 years. We had to pass ObamaCare to find out what is in it, and it basically says "As the Secretary Shall Determine." Sounds like Mao or the Politburo to me.

TLP| 6.15.12 @ 8:27AM

Why, exactly, does the Market go UP, and how is that even possible?

It goes up when a Company lays off its employees. It goes up if a Company Beats the Market Prediction by selling 3 of its Widgets instead of 2. It goes up if Ben Bernanke Farts, just as long as he doesn't Sh* t his pants in the process. It goes up whenever that smarmy little Puke - Geithner - shows his Suck Face around town, and LIES though his Teeth, about anything and everything.

The Market is Bernie Madoff. It's Ponzi. It has devolved in to what it was, just before it CRASHED, back in 29.

The Fundamentals of THE WORLD ECONOMY have disintegrated. Even the word - VALUE - has lost its value.

You might wanna start PREPARING for the inevitable. You might wanna stock up on things, other than PAPER, if you know what I mean.

"That's ridiculous. What you're suggesting could never happen, in the U.S."

We have a Marxist Muslim Black President, who was Raised in the Muslim Schools and Mosques of Indonesia, with everything We The People should know about him, Sealed in a Vault on a Volcanic Island in the middle of the Pacific Ocean. We have to Borrow from the Communist Chinese, because their Economy is better than ours. We need to Hitch a Ride in to Space with the Russians, and all of our Intelligence Organizations have been Infiltrated by The Muslim Brotherhood Terrorist Organization, on the Orders of our Marxist Muslim Black President, but I'm supposed to believe that THE MARKET CAN'T CRASH?

Hello

Ryan| 6.15.12 @ 8:45AM

How is the communist Chinese economy better?

TLP| 6.15.12 @ 8:53AM

Please.

I'm busy.

I don't have time for Idiocy! from someone who is so obviously, Mentally Challenged.

WE borrow from THEM.

Get it?

They're GROWING at about 9%.

We are not.

Now, GTF outta here.

aware| 6.15.12 @ 10:25AM

You believe their numbers? I suppose building ghost cities can sure make the manipulated "data" look like a 9% GDP "growth".

Also if you start where they did, say America circa 1800, even 9% ain't too impressive. The borrowing we are doing isn't a result of them doing so good, it's us being stupid.

Besides, for the last 2 years they have been dumping not buying. Our own central bank accounts for 62% this year and 75% last year of Treasury buying. This is the one thing that is even more stupid than borrowing from potential enemies.

TLP| 6.15.12 @ 4:22PM

Go to any store, Dumbfck, and see where EVERYTHING is made.

Hello?

aware| 6.15.12 @ 4:52PM

You know I think I know what your problem is. Why don't you name a time and place and I think I can fix it. I'm not to big to take an ass stompin', how about you, jerk?

TLP| 6.16.12 @ 7:59AM

And you're not big enough, it would seem, to know you ass from a hole in the wall, either.

"How is China's Economy better?"

How are you this stupid?

Dagny Taggert| 6.15.12 @ 10:47AM

Timmmmaaayyy! The market went up because there were more buyers than sellers for the day. It's that simple. Any further "analysis" confuses the situation.

TLP| 6.15.12 @ 4:25PM

No. Any REAL ANALYSIS, explains why this is a House of Cards.

You can't be this Stupid.

Can you?

I'm guessing, you can.

Von Mises Jr| 6.15.12 @ 6:31PM

You need buyers of equal numbers of share as sellers of the same shares. Clearinghouse takes place where Wall Street takes possession at an agreed upon price per share by stock, but you cannot have a sale without a buyer and a seller that net out.
The market goes up, genius, when the price of the stocks go up, not on people buying non-existent shares.

Warrior| 6.15.12 @ 11:13PM

The market goes up because regardless of today's economy, the fed has been laundering a trillion or so dollars through Wall Street and the banks. If the printing presses and borrowing were to stop, the stock market would crash and find its true level.

TLP| 6.16.12 @ 8:02AM

THANK YOU.

Just don't tell aware.

You'll just confuse him.

And, don't tell him that China is kicking our ass.

That, also seems to mess up his head.

Von Mises Jr| 6.16.12 @ 8:41AM

Neither economy is really capitalist currently. Rothbard describes the West after WWI as mercantilism with the flare of the industrial revolution. It is a cabal of big business and government in a centrally controlled public-private partnership.
At least China is going in the right direction with establishing property rights and having their own industrial revolution, even though they are still a repressive regime. But they are smart enough to create capital formation. That is why they are our bankers, or where until we got stupid under Bush compounded by Obama.
Now we just print money at the Fed Window and the government lends to themselves. It is called monetizing the debt. All while our government pisses away our wealth and people cannot save without any job creation and high inflation setting in. Jim Rogers, the famed investor left and moved to China, since he thinks it is the future with current trends.

TLP| 6.16.12 @ 4:06PM

The Right has always said that, once people get a TASTE OF FREEDOM - in this case, the freedom of a good life, and making money - like the Camel's nose under the tent, there's no turning back.

They get it.

The Muslim does not.

Or, at the least, he hates it, and wants nothing to do with it.

Von Mises Jr| 6.17.12 @ 9:30AM

This was a message from Tocqueville in the "Ancien Regime." He muses how the French peasants were the best treated among serfs in Continental Europe, but "once the door was cracked, they kicked wide open."

Scaramouche| 6.15.12 @ 7:19AM

Good article Ross. Sounds as if the spike up caught you, as it did me. In the AM, the "bad" news couldn't push it down. Damn, I should have known then, what couldn't possibly happen, was about to. Also, accurate comment, Von Mises!

Fiscal| 6.15.12 @ 7:37AM

The market is generally strong because corporate profits are strong and growing despite weakness for small businesses and individuals. Here is a graph of corporate profits after tax:

http://ycharts.com/indicators/corporate_profits

Since market valuation of the long term is generally measured by profitability, this explains why the market is up. In this sense, Obama was actually right about corporations doing just fine. In addition, consumer spending is generally stable, and in the face of Europe showing spending declines, this is a relative positive. This is why foreign investors still thing the U.S. market is relatively strong and this also raises the general market levels.

Using Europe as an example of social welfare states today is also backwards thinking. The conservatives now control Europe as austerity measures abound. These measures have caused a double dip recession there. I'm not denying that social welfare caused these problems, only that austerity does not seem to be the answer in real life, either economically or politically.

Fiscal| 6.15.12 @ 7:45AM

While this last comment may seem to bolster Obama politically, this could not be further from the truth. Obama has done little to help the economy and the only tool he has is to spend more on government jobs -- which in the longer term, will make things worse. Republicans also do not have good answers as the Romney plan will create even more debt than Obama's given historical precedents.

The real truth is that we need to get government out of the private sector. Whether the intervention is from the left or the right, trying to control the economy through either supply side or Keynesian principles does not work. Money is fungible and individuals and corporations find a way to sidestep any barriers put before them. In addition, we need to pay for the things we've already received. It is irresponsible to continue to spend more than we take in and severe cuts cannot mathematically make up the difference. There must be more revenues as well.

But this will not happen because we are politically divided and depend on either right or left solutions, and not market solutions.

TLP| 6.15.12 @ 4:41PM

This is not Rocket Science.

Open up EVERYWHERE, to Drilling. Just look at what FRACKING has done to the Economies of every State that has told the Robert Kennedy Jrs. to Go Fck Themselves.

They're BOOMING.

Open up Anwar. Open up the Alaskan Seas. Open up the Gulf, the East and West Coasts. We're talking MILLIONS of Direct Jobs, and MILLIONS of Support Jobs.

Boom Towns, like those that border Pennsylvania, are Booming. Hotels, Motels, Restaurants, Bars, Bowling Alleys, Movie Theatres. They're all Booming.

Stop Fcking with the Coal Companies.

Make our Corporate Tax one of the LOWEST, instead of the HIGHEST IN THE WORLD.

Get rid of the THOUSANDS of Job Killing Regulations, put in place by President Socialist.

Get rid of Dodd/Frank. Put a leash on the EPA. And get rid of the NLRB.

Get rid of all of the Government MANDATES, on Corporations.

Like I said.

This ain't Rocket Science.

We need to get back to our Roots, and lose this idea that SOCIALISM WORKS.

I cut grass for a living, and I can see this as clear as day.

So, what's the problem?

rightasrain| 6.15.12 @ 7:53AM

Austerity measures do not abound in Europe. Very modest spending cuts have been accompanied by large tax increases. And France, the UK and in some years even Italy have increased spending.

Fiscal| 6.15.12 @ 8:13AM

"Austerity" does not mean only spending cuts. It means actually paying for what you currently spend, and have spent. Therefore, tax increases are also a part of an austerity program. Look at it this way... If you bought more than you could afford in the past and had to pay for it now, you most likely would still have to spend on the necessities, but perhaps you'd need to take a second job (added revenues) to pay off the loans. It is a common mistake to assume austerity only means spending cuts.

rightasrain| 6.15.12 @ 8:47AM

Yes, but extremely modest spending cuts and large tax increases is not a balanced approach and can't possibly stabilize their debt.

Fiscal| 6.15.12 @ 9:57AM

The plan calls for a reduction of half a million government jobs and reductions in entitlements. I'm not sure I'd call that modest. Tell a senior citizen here that their Social Security and Medicare benefits will be reduced and you'll see what I mean.

Truth to Power| 6.15.12 @ 9:01AM

The Republican Party will not be tax collecting for the Democratic Party's give aways. You need to get used to that idea Bob. The big O will have to raise his own taxes for Solyndra and his gay money bundlers. Maybe supporters like yourself should come up with the money. We'll do the cutting though. The big O had his chance and he decided to spend, do nothing about entitlements and do nothing about taxes even when he controlled everything. His tax theme only came when he couldn't make it happen. What kind of idiots supported this guy?

Fiscal| 6.15.12 @ 10:04AM

That's nice, but not realistic. I agree there should be significant cuts in spending -- including both entitlements and defense -- but even with significant cuts, you'll need added revenue to reduce the debt. Remember, neither Reagan nor Bush made government smaller.

With regard to Obama, he has not raised taxes and in fact, reduced them. Spending under Obama is primarily structural and increases in entitlements were agreed to by both the right and left over the years. It would not have made any difference if McCain were President as he would have as little control over these structural deficits as Obama.

Both McCain/Palin and Obama were bad choices in the last election -- especially that dimwit Palin. But that does not excuse Obama from being one of the poorest chief executives we've ever had. I supported Romney the last time and Romney today. He's a strong, smart executive and while he won't change as much as people think, he's a far better alternative than keeping Obama in office.

Controse| 6.15.12 @ 11:19AM

Well thanks for clearing that up. About Romney being better than Obama I mean. I am sure your readers were wondering which way you were going to jump on that one since you don't seem to know what you are talking about on anything else.

Truth to Power| 6.15.12 @ 2:31PM

It is not realistic to make deals with crooks. We won't be raising taxes for your man.

With regard to Obama, like I said, he only wanted to raise taxes when he couldn't do it. When he had control of Congress he didn't do it.

If you're going to mention Palin you should mention the idiot you voted for, Joe Biden since he is our Vice President. Both he and the big O make Sarah Palin look like a genius. By the way when you're mentioning Sarah Palin now we know what you are and who you supported. You don't need to tell stories Bob.

aware| 6.15.12 @ 10:34AM

When has the Republican party NOT been a tax collector for the Welfare State? The 1920s?

TLP| 6.15.12 @ 4:45PM

What the Hell happened to you?

You actually sound, (How can I put this?) inspiring.

Nice Job.

Pecos Pete| 6.15.12 @ 8:22AM

The stock market today is like gambling at craps.

The market value of profitable companies will increase when there is some assurance that the federal government will STOP central planning. No one knows what will happen with the "Bush" tax cuts after the November election. No one knows what will happen after the SC passes judgment on ObamaCare, whether it is constitutional or not. No one knows if the EPA will shut down electricity production from coal fired plants next year .. or the year after that. No one knows how Congress will handle the debt limit.

In other words, no one knows a damn thing about the near term economic condition except that we can expect inflation will be the solution to paying off the national debt and the unfunded liabilities of the federal government.

The stock market is a fools betting arena.

Fiscal| 6.15.12 @ 8:45AM

This nonsense about the unpredictability of the markets is a political argument, not an economic one. Corporate profits are relatively predictable -- and corporate profits are up. Because of computerized trading in large blocks, mostly by hedge funds, you do get swings in the short term, but longer term trends remain relatively consistent. The swings from computerized trading do indeed cause greater variances than normal as the hedge funds and investment banks make money this way from use of their PhD mathematical whizzes.

We've always had economic uncertainty and today is not any different than the past. However, the housing bubble, which caused the latest decline, occurred before Obama took office. It wasn't uncertainty that caused the problem, it was absolute certainty that the housing market would always go up and never come down. It's this kind of "certainty" that causes instability in markets -- not things like Obamacare -- especially in an economy where most corporate profits and manufacturing for U.S. companies occur outside of the U.S.

aware| 6.15.12 @ 10:30AM

Are you saying all is well because corporations' profits are predictable(certain) but also say a crash happens because of certainty(predictable)?

Pardon if I misunderstand.

Fiscal| 6.15.12 @ 10:46AM

We were talking about the stock market and I made no conclusion that "all is well". Large corporations, and their executives, are doing well because of long term trends of productivity increases, lower labor costs, and global markets. For the individual, however, all is not well in both this country and others. Government can do little to help and intervention on BOTH the right and left causes problems. Continued spending with decreases in tax receipts makes no sense. Haven't we learned by now that tax cuts without spending cuts only increases the problem -- except for large corporations who thrive in an environment where they can exert political control over their bottom lines. Large corporations do not want tax reform since their effective tax rates are not that bad even though to the unknowledgeable, their marginal rates seem excessive. Large corporations love this environment where the tax code is so complicated they can make their accounting and lobbying departments profit centers.

We have never been able to force spending cuts by cutting taxes. Until there is a balanced budget amendment and term limits I'm afraid there is no good answer for the rest of us.

aware| 6.15.12 @ 2:28PM

You don't really think a balanced budget amendment would be any more sacrosanct than the rest of the constitution, do you? I don't.

Term limits would also be inconsequential if the revolving door only ushers the defeated into lobbying jobs.

There will be no political solution. Elections won't matter because only promising more of the same wins and promising differently loses. Imagine someone vowing to take the punch bowl away getting elected. My imagination isn't that good.

"Government" is the most successful criminal conspiracy ever conceived of. We are careening toward a global reset where events will drive people, not the other way around.

Anthony| 6.15.12 @ 8:31AM

Of course it's an Alice-in-Wonderland market,what small investor is investing? This market is as phony as Obozo and Chief Sitting bull Warren.

R Martin| 6.15.12 @ 8:38AM

Ross, as a financial markets trader you have to be practically giddy about all the opportunities to make money from the wide swings you cite, particularly as a vibrant options market allows you to do that while limiting capital risk. However, as a financial journalist you are rightly concerned that no rational thinkers are doing the long term planning. In the old days big financial crises were dealt with by private sector guys like J. P. Morgan, Andrew Mellon, Pierre du Pont and others. Today those kinds of business leaders are being reviled as capitalist pigs and are not going to offer their expertise, knowing they will only be demagogued by the left.

Fiscal| 6.15.12 @ 9:03AM

You are right, in the old days markets weren't very democratic and the big capitalists used artificial controls and manipulation to achieve results. This kind of manufactured stability is akin to benevolent dictatorships.

Democracy, in both politics and financial markets is very messy, but I would claim it is better than the oligarchy of the past. In fact, there was too much interference with markets back then, and too much now as well. Only today, you influence markets through government and lobbyists on both the right and the left.

Where we agree is the demagoging of the very rich. They are just following the rules laid down for them and taking advantage of any deregulation they can get. What we need, is to realize that the only government function is to make sure that markets operate without cheating and that people guilty of cheating are personally liable for their actions. That means getting rid of subsidies, tax incentives, loopholes, and any industry specific laws and forcing institutions to follow good practices like maintaining adequate reserves for future projected liabilities.

ata777| 6.15.12 @ 11:17AM

and you think a market where 70-80% of trading is done by algorithm-controlled machines with no human input is democratic? yeesh!

Ross Kaminsky| 6.15.12 @ 10:00AM

You are right, Mr. Martin...now if I could only do a good job with it! Next week should be interesting, to say the least.

R Martin| 6.15.12 @ 1:17PM

As I read your piece I was reminded of the hypothetical wager you posed a few months ago: Who would take a one-time $10,000 chance at 10:1 on odds. That bet is now available for real in the options market. Are you in the game?

TLP| 6.15.12 @ 4:47PM

It must be nice, not to have a REAL JOB.

buckeyeman| 6.15.12 @ 10:44AM

I have always thought that the stock market is fundamentally irrational. Imagine a friend coming to you and asking you to invest in a business down the street. For your investment you would receive no predictable return, you wouldn't ever be able to effectively participate in management decisions, you would get to stand by while management is granting themselves HUGE salaries, benefits, stock options (often back-dated), pensions, and golden parachutes. Your only hope of making money would be to convince someone else that the enterprise was more "valuable" than when you bought your interest and that they should buy your interest from you at a higher price that you paid. You would likely throw your friend out the door, yet I think I have just described the fundamentals of how the stock market works.

A friend of mine once heard my rant and responded by saying that despite my emotional dislike of the concept, the actual fact is that, over time, the stock market returns higher yields than other common investments. Maybe true. Still the market makes no actual sense to me other than a shell game.

R Martin| 6.15.12 @ 1:42PM

Sir, you really must put some distance between yourself and all those Ohio leftists who are trying to turn your brain into corn meal mush.

The stock market may at times be irrational as Mr. Kaminky points out, but it is not fundamentally irrational. Everyone with a pension, an IRA, a 401K and even that guy in Omaha who wants to raise your taxes knows the market works properly and fairly in the long term. And if you invest in that business down the street you’re only chance to make money is not selling your stake to a greater fool. You hope and expect your friend will be successful, make money, pay dividends and you will probably help him in that effort. If your friend pays huge salaries, perhaps the recipients earned those paychecks and deserve them. But if your friend back dates stock options, he will go to jail.

Please consider also the role of the stock market historically in helping create the powerful engine of economic growth that has made life so good in this country. Our economic system is capitalism, capital is one of the key factors of production and the stock market serves an important role in allocating that capital efficiently and productively.

CJW| 6.15.12 @ 10:45AM

The US stock market will benefit from the problems in Europe and elsewhere because as bad as we think our economy is, the USA is still the safest market to invest.

And with the adbidcation of the Obama regime, and Romney landslide, the economy will improve, with more jobs and a reduced deficit. The election of Romney and hopefully a Republican Congress will restore some certainty in the tax code, reduce regulations, and increase domestic drilling for oil and gas. This will spur housing and consumer spending.

Fiscal| 6.15.12 @ 10:54AM

Even though Romney will make a much better President than Obama, the economy will fare no better under him because our problems are structural. Regulations and increased domestic drilling have little effect on our economy because our problems are structural. In fact, reduced regulations in the wrong places will cause problems like the housing bubble and even in the right places, the effect will be minimal. Housing will not improve for some time because of the decline of the middle class. Romney will be marginally better, from an economic point of view, than Obama, but if you think there will be a major difference, you're smoking something. The one big fear is that Romney's budget will explode the debt faster than Obama as it is currently projected to do.

CJW| 6.15.12 @ 11:29AM

You are wrong.
Using the word "structural" does not explain anything, and is used by the Dems and others to confuse and justify not doing what is necessary.

We need is to cut spending, reduce the deficit, reduce regulations, get rid of Obamacare which will happen this month, and reduce/simplify the tax rates. It worked for Reagan and will work again.

Drilling for oil/gas will reduce our costs for transportation which is vital to the economy. If you don't believe that the cost of fuel for autos, trucking industry, aviation, heating, and so on is not vital to the economy, then you do not understand economics. The housing market will improve when the economy improves and more people are back to work to afford purchases, and those now employed will get raises.

You sound like one of Obama's economic advisors.

Bob Grant| 6.15.12 @ 12:34PM

"...In fact, reduced regulations in the wrong places will cause problems like the housing bubble ..."

------

You've got that bass-ackwards. Start from the beginning with Jimmy Carter and then read how Bill Clinton put the final pieces in place - THROUGH REGULATION - that caused the housing bubble.

Sure, the financial industry and republican are to blame as well but their part was REACTION to what was put in place by Carter and Clinton.

The problem all began with regulation and the reaction to that regulation.

In other words, it was a classic example of The Law of Unintended Consequences.

Dagny Taggert| 6.15.12 @ 11:31AM

Ross, you've fallen prey to the worst habit the media created, and continues to perpetuate daily. Unfortunately, what they're doing is outing us (the consumers of their reports) as two-year olds. You know how two-year olds always ask "why?" We can thank Walter Cronkite and the early purveyors of nightly news for the two-sentence "reason" for whatever the market did that day.
"Stocks were down of profit-taking." (Really? So somehow the copy writer was able to figure out that only the stock positions that the sellers sold were those that were being carried at a profit?)
"Stocks were up on good earnings news from Apple." (Really? And how did that have an impact on, say goldmining stocks that might have been up as well?)
The only TRUE "reason" for stocks to be up in a session was that there was more buyers than sellers. The only TRUE "reason" for stocks to be down in a session was that there were more sellers than buyers.
After that it is all speculation on "why." Perhaps stocks were up yesterday because the NYSE short position, and investor cash positions were at 2-year highs, and hedge fund net exposure were at two-year lows, thus everybody who wants to be out IS out, and there is no supply of shares left to be sold. All it takes is a little demand, and voila: stock prices went up!
The market is a discounting device of future events--todays "news" was April's future event.
"Buy on mystery, sell on history."

Ross Kaminsky| 6.15.12 @ 12:01PM

Speculating about speculation can be fun and interesting. Obviously I understand that markets are about supply and demand, as I've been trading for a living for 25 years.

JP| 6.15.12 @ 11:53AM

These are strange times we live in. I cannot think of another time when world economies are built upon such huge piles of international debt. It isn't just the US and the EU who are doing this. China and India have gotten into the act as well. Perhaps we have reached a point that conspirators for decades have worried about - a cartel or national banks (such as our Fed) that co-ordinate actions in order to reach some desired result. Call in QE for the global masses. In the mean time, assets will remain over-valued. And commodites like oil will continued to be priced accordingly. With every uptick in the stock market there is a corresponding increase in energy. Yet, demand for oil/gas isn't exactly high. Our economy is like a balloon with several pin pricks in it. No matter how much air you inflate it, delfation isn't far behind.

Bob Grant| 6.15.12 @ 12:03PM

You write that the U.S. is not Greece yet but according to a special report on FOX Business News, we are:

Fox Business News reported last night that J.P. Morgan, underwriters of state and local pension funds, has a top secret document that reveals states are not underwater by a mere 900 billion dollars, the amount most people thought was correct, but 5 TRILLION dollars!!

Yep, 5 TRILLION dollars of underwater state and local pensions!!!

The hits keep coming.

Folks, Greece is here!

Read about it on FOX Business News - Neil Cavuto - Charles Gasparino.

Who Knows?| 6.15.12 @ 12:38PM

Where’s Einstein when you need him?

Everything IS relative. Or, breaking it down further, there exist myriad things, as well as thoughts and opinions, and the value of EACH of them---fluctuates.

Today’s worth is the price gleaned from many relative “dances”.

Besides, the market rising 155 points ain’t spit, it’s the relative = percentage rise that counts. Also, daily moves matter only to day traders, essentially.

Remember the body-mind split, as applied to all the things and processes that exist. There is the actual pound of rice, and its price, say in dollars.

It’s the BALANCE SHEET that matters!

I think most people are “cash flow” accountants, not “P&L” ones, when it comes to their own finances. That is, they mostly live month by month, only roughly controlling their money-in verses money-out balance.

Hey, accounting is so hard! Let the bank balance my checking account.

I trust THEM---hello Ben Bernanke and Tim Geithner.

I own my housing, my car, and all other things I need—assets that I can keep “alive”, until I die. And, the cash flow is plenty adequate to cover regular expenses.

Why?

So I can enjoy life!

Just think---Beethoven wrote over 100 pieces of music!

And, how many other great composers are there?

Balance Sheet---music!

Occam's Tool| 6.15.12 @ 2:10PM

Let's see: I hate foreigners, and I want an economy proof product: voila! Philip Morris. (PM). Of course, my time line is 20 years.

Dixon| 6.15.12 @ 3:30PM

The world is plunging headlong be run by a global currency with central controllers dictating the terms of all transactions....no more freedom to buy and sell to meet individual needs, but to serve the global leviathan.

Obamantion, should he find a way to hang on to power, would cheerfully provide bailouts to Europe as the euro collapses (as long as they pledged more stimulus to feed the union sheep), hastening the downfall of the dollar.

Then comes "a really good crises" to exploit....where panic and fear lead to rationing and confiscation, and a battle between the bleating sheep and those who love Life, Liberty, and Happiness...a new world order is forced upon humanity.

Truth was penned by St. John's hand!

Moe Blotz| 6.15.12 @ 7:49PM

About Alice:

I once knew a girl named Alice,
Who used a dynamite stick for a phallus.
They found her vagina in North Carolina,
And bits of her tits in Dallas.

DIY Investor | 6.16.12 @ 4:45PM

It certainly is a rough time for investors at the minute. Long term investment strategies will always beat short term active fund investing.

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