In the 1 September 2009 edition of Material Evidence, Sean Corrigan explains why the stock market is rising and why the appearance of prosperity will not last.
… the CRB equal‐weight index has put in a six‐month burst only topped in half a century in the run‐up to 2008’s peak and during the severe dislocation of the first oil shock, while the DJ Industrials ‐ lagging by a couple of months – have just registered their best half year since 1933 itself.
Without stopping to rehearse the entire thesis (laid out most recently in the last two editions of Tangible Ideas, viz., ‘Lord Timon’s Purse’ – oriented towards money and credit ‐ and ‘Goodbye to All That’ – which dealt with their real‐side impact), this ‘bullishness’ may have imparted the impression that we have something of a schizophrenic mindset since, in all other respects, our outlook has been jaundiced, to say the least. To the contrary, the two are not at all incompatible, but, rather, interrelated, since what we have all along said would drive a rapid rebound in asset prices would be continued central bank laxity, supercharged by the monetization of soaring government deficits and magnified by the market’s utter misunderstanding of the nature of the ‘recovery’ this has engendered as the liquidity crisis of ‘Snowball Earth’ has partially thawed to a still glacial Little Ice Age of misallocated capital and sorely impaired balance sheets.
Thus we continue to try to look past the breathlessly‐reported headline ‘numbers’ (which, presumably, is somewhat fundamental to the very business of analysis) with the aim of trying to ascertain whether any genuine and abiding improvement of private business is in train or whether all we are seeing is the overspill of state‐led, monetary‐fiscal orgiastics which are therefore doomed to end in another debacle at some indeterminate – but hardly indefinitely postponable ‐ point in the future.
Hopes for a flurry of company takeovers and growing belief in the strength of economic recovery on Wednesday propelled the FTSE 100 index through the 5,000 level for the first time in almost a year.
Graham Secker, equity strategist at Morgan Stanley, said that equities, helped by the improving economic outlook and continued support from the world’s central banks, were enjoying a “sweet spot” that would sustain the rally for now.
“Growth is picking up and the stimulus taps are still full on. That is a pretty good environment for stocks,” he said.