Change the Subject!

The melt-up continues. We see in the WSJ the Sherlockian insight that strong earnings just might be “baked into stock prices”. You think? Everywhere we look, we see indicates that the economy was much more resilient than we gave it credit for, that rumors of its demise had been greatly exaggerated. For example, what ever became of that wave of mortgage defaults that was going to set off by re-sets? That this tsunami hasn’t let loose is not just because it has turned out that many of the scheduled re-sets of adjustable mortgages have actually lowered payments. It also has to do with the likelihood that the idiot speculators who indulged in that government sponsored insanity are long gone. The flippers who took that mania to its apex in 2006 either quit showing up about three years ago or started walking away from their losses two years ago. It was speculators who blew the last bit of air into that balloon, and speculators don’t tend to sit and wait, hoping for some kind of uptick to bail them out of their heavily leveraged investment. It is relatively easy to stop throwing good money after bad on a speculation (as opposed to the home in which one resides; one has to live somewhere and pay for it somehow), so we got a flush of defaults not long after the great real estate bubble started to lose air. This was then extrapolated into the inscrutable future and correlated with expected interest rates. Wrong on all counts. Real estate will be a tough way for non-astute investors to make money (as opposed to that rising tide that lifted so many boats for a couple of generations) but it is not dragging us down the way so many smart guys said it would.

Which brings us back to the melt-up. Its not just the marginally astute trying to eke out returns on their still shriveled (relative to the plan, five or ten years ago) retirement stakes. It’s the disappointed, painfully flummoxed Bears. There has clearly been a ton of money bet that the world should have more or less ended by about now, or at least that signs of the end would be clearly in sight. If the short side of things is part of what you do, not much of that has been working lately. A few stocks are trading down, but that’s always the case. More generally, they can trade ‘em down but they can’t keep ‘em down. The Bears will get some kind of respite some time this year, especially if stock prices keep melting up right into the earnings season, but it won’t be enough, especially on a heartburn adjusted basis, to have made it worth their while.

Of course, we have been treated to assurances that the Market is applauding the signing into law of “health care reform” (Typing these words reminds me of what someone said about how “holy”, “Roman” or an “empire” the “Holy Roman Empire” was NOT.) This is to be expected, especially as one takes stock of the all out effort underway for the last two weeks to change the subject. They came out blazing. Shortly after Mr. Bart Stupak took his place in the ashcan of history (“right over there, sir, next to Neville Chamberlain.”) we started getting a full throated Chicago style charm offensive. From the talking heads at the media outlets that still register blips in the ratings down to blog trolls who seemed to have been in hiding for the past few months, we got what was supposed to pass for an end zone dance. We also got what seems to have been yet another campaign to demonize anyone who speaks up in opposition to Fearless Leader. We are supposed to be scandalized that when a country so large and diverse gets worked up about something so ultimately personal, a few yahoos show up and express themselves in ways that cross the line out there somewhere between spirited and vile. I think that we should be surprised, maybe even concerned about testosterone deficiency, if in this polity of 310,000,000 souls, we did not have at least 31 or even 310 whose utterances managed to gross us all out. A couple of broken windows, which for all we know might have been done by disgruntled Obamanauts (like in Denver last year), is somehow the equivalent of Kristallnacht? How odd, that despite big cash offers for hard evidence, the only perp in custody was uttering his vile threats against a Republican. And how surprised should we be that the same weekend that the Commander in Chief takes off to “support the troops” and wax censorious with yet another erstwhile ally, the Feds decide to drop the hammer on a bunch of crazies? Again, in a great big country like ours, we should be surprised if there were not dozens of cells like the one just busted up in Michigan, any one of which might dragged down to headquarters when it gets so bad that the chief needs to show that he is still in charge, or his claque wants to create the illusion that its not much different than in 1910, when anarchists’ bombs were going off almost every week.

This is all political theatre, and it continues to go badly for the statists. The bill just passed settles about as much as the Compromises of 1850 did, which is to say that probably the most enduring thing it has done is to scandalize an awful lot of normally placid and apolitical people. Who among us is holding his breath for that “once it passes, the people are going to love it” groundswell? Other than that not insubstantial segment of society that was already in favor of “spreading it around” (i.e, they already vote the Parasite slate), such “love” is not going to be forthcoming. A center-right country has been goaded slightly more so. The Pied Piper’s tune has turned tinny and annoying. The more the Change horn blows, the more we wish he would just go away. A few more bad laws will be passed in the next few months, but those laws will be like so many barnacles on a very big ship whale that was already pretty encrusted, yet sometimes manages to knock a few off. The debate/theatre we just lived through (which, by the way, was over a bill that was supposed to be “on my desk” in time for the late summer recess) amply demonstrated that said leviathan still has a pulse. This means that however dreadful the last few years have been, we are still a few adverse developments at least away from it no longer being the world’s leading “mattress” for capital.