This past, week, the Market gave us a glimmer of the strength of its longer term upward bias. After a dozen or so days in a pullback mode, February 5 was the day they just couldn’t trade it down anymore, from whence it marked time for a few days and then started to act like a Bull again. By the close on Thursday, after four up days, it really was ripe for a fall when the Fed came out with its “rate hike” (which was nothing more than a technical adjustment that was sure to happen within the next month or so anyway). The after hours crowd tried to make something scarifying out of it, but we got little more than a speed bump jiggle in a Market that really acts like it wants to go up. Solid earnings, a benign inflation report, and a few reminders that M&A is back in mix were enough to stretch the rally to five days. I still think there will be a more serious correction than that which marked late January sometime this year, but this is one healthy Bull.
The economy seems to be mending at least as well as I would have hoped for only a few months ago. Like all recoveries, this one will have its weak spots and exceptions, but it is definitely on the mend. I am not so sure that there is some surprising substance to it so much as we are proving out the truism that at the peaks and valleys, it is never as bad as it seems or as good as it seems. The Panic was bad, no getting around it, but it was just that, a panic. Emotions got a hold of nearly everyone, and fears regarding the immediate dangers were compounded by all kinds of “what ifs”. That moment, which felt like an eternity, has passed. Damage was done, but the system held together. All kinds of pent up demand (consumers starting to do the things they felt forced to put off as far back as three years ago) is coming unstuck. There will still be plenty of anecdotal evidence for the Gloom-meisters to peddle (it is, after all, a great, big country) but we are more in danger now of overheating (to the degree that some of that stimulus money finally starts to kick into an up and running economy next year and beyond) than slipping into that “double dip” that kept so many investors in safe havens last year.
More fundamentally than even earnings, I think it matters to that proverbial investor at the margin that the U.S. has demonstrated that political accountability is not as dead as had been presumed. In other words, the rascals in Congress are running scared, too scared to aggressively screw things up. A year ago it seemed that the American people had finally given their assent to the Road to Serfdom. Subsequent events have proven otherwise. The caricature American of fat, lazy and hedonistic, willing to forfeit successively dearer liberties for bread and circuses (or medicinal marijuana and HDTV), is not completely without basis, but even if it were generally true (which I suspect it is not) there are still plenty of kicking and breathing exceptions running around the place. A normally irenic slice of America responded to statist overreach in a way that suggests that a much more vigorous people live here than that media perpetrated caricature had led many of us to believe. We have some big problems looming in the future, and there will be some pushing and shoving around how to deal with them, but such has always been the case. I think what has developed early this year is the prospect that incumbent legislators might not be as secure, and therefore unaccountable (and therefore susceptible to corruption), as the experience of the past generation or so had led us to suppose. The people have been aroused, but in a thus far civil sort of way, and as a result the governing class is cowering in a way not seen in a very long time. This is good news for the owners of the corpus, not so good for the parasites.
We even have seeming good news with respect to the prosecution of the 1000+ Year War. I say “seeming” because it is always hard to know if an apparent change is actually taking place or are they just reporting differently. I am referring to what seems like an uptick in remote control assassinations in Af-Pak. Others have noted the strange disconnect in a policy that overtly confers Constitutional rights on those who proudly admit to terrorist acts on U.S. soil but is willing to apply a missile to the back of the head of a mere suspect along the Af-Pak border. So we have this dissonance between what the Administration says and what they are apparently getting done. What we don’t know is whether the drones have been operating effectively all along and they just started reporting results (driven by that cynical need to tend to appearances) or did we in fact take things up a notch. It is also possible that this relatively new technology for administering lethal doses of heavy metal has seen something of a step-change improvement. This could be the integration of improved sensor technology, or even a breakthrough in how on the ground intelligence gets processed into dispatch protocols. I suspect there is a good bit of this behind the recent successes, as our somewhat uniquely American ability to apply collaborative innovation to making things work better plays out, but there is at least a smidgen of “we’re getting results!” spin in there, too. At any rate, while this War will not be going away in our life times, it just might be getting knocked back down from flickering to smoldering as the Taliban runs out of places to hide.
After its tear of the past five days, the Market is good and ready to pause in a way that will tempt the nervous nellies to despair, if only long enough to sell something that a week later they will wish they had not. They should resist this temptation. The past few years were some kind of storm, and damage was most definitely done to the organism that is the U.S. economy. But it is a mighty, sprawling and resilient organism, much more firmly rooted than we seem to understand. Surely there will come a day when our experiment in ordered liberty, such a departure from the stultifying slow motion decay that embraced Eurasia for so many centuries, will peter out, but it is not now. Stay long, stay strong!
No comments:
Post a Comment