Disconnect: The World Is a Disaster but the Market Seems Just Fine
Investors Who Can Separate "World Reality" From "Market Reality" Will Do Just Fine
As we looked around for something boffo to write about this weekend, we found nothing new and exciting. That suggests that something extraordinary is most likely to be around the corner. But what is it?
Maybe it's all been done. Maybe it's all been said. Maybe none of this matters? But we all know it matters. We all know that we could blow the whole world off and then come back and have a stack of bills waiting to be paid that bring us back to reality.
Around the world the same themes are apparent. Wars, atrocities, ideological madness and a continued and growing disparity in wealth. What it all amounts to is that little is being accomplished and that the current cycle is going to be in place for some time in the future.
Yes, if Israel attacks Iran the world will notice. Markets will move. And other unpredictable circumstances will unfold. North Korea remains unpredictable. And Spain, Portugal, and other countries in Europe are still insolvent, nearly insolvent, or on their way to being insolvent. And yes, the U.S. debt crisis continues to climb. Gasoline prices are skyrocketing. And the U.S. election is getting stranger by the minute.
None of that matters to the markets right now, though, because the world is currently built upon a giant mountain of paper money created out of thin air. And the public has little idea about that. There are still a lot of people out there that think that money is backed by something, if they bother to think about it at all. Many just go about their business day by day doing the best that they can and don't have the time or interest to worry about the macro issues or the minutiae about where money comes from, or if the economic data being put out by governments is the truth. Many just don't care. And that's why governments and big trading firms get away with their actions and mostly escape unscathed. Too few people understand how the world works.
But our point isn't to go down a laundry list of what we know. It's not to wax philosophically, although it seems that way in this column. It's to see if there is something lurking out there that no one has thought about, the inevitable Black Swan, or dare we say it White Knight event.
What is troubling to us is the complete disconnect between what was once thought to be right and wrong and what is being bandied about as modernity. More distressing is the notion that modernity has a certain inevitability about it, an unstoppable momentum that can't be stopped, like a freight train that is running headlong along a track that never ends.
If modernity is about technological advance, that's fine. But if it means that crimes against people, groups, and countries can be committed in the name of "progress," there is something wrong with that. And no one seems to be paying attention that central tenet. Nothing is inevitable, except death and taxes. Even the latter is more questionable is there is political Disorder, which could be one of the many potential outcomes of the so called inevitability of modernity.
In other words, modernity without morals, responsibility, and common sense is a prelude to a dark future where anything goes, and where anything that goes is more violent, depraved and without concience as it's aided by technological advance.
What does this have to do with the markets? Nothing and everything, with inevitability being the common link. Think of the current market as one in which a correction has been predicted, including by yours truly, for some time. Yet, it hasn't come. And the market has climbed to new highs.
This is a momentum market. And the momentum is beginning to get that feeling of inevitability, similar to that feeling expressed expressed by The Washington Post's Lisa Miller in an article discussing the Rick Santorum campaign, which is beyond the scope of this column. Nevertheless, her conclusion is quite appropriate and says: "Modernity is here, with all its progress and imperfections,and no matter how hard they pray, Santorum and his flock will never be able to turn back time."
That's really what's at the center of everything that is going on in the world right now. That's the centerpiece of the polarization. Some people want to do things as they did in the past, regardless of the good or evil that those things engendered. Others want to leave the past and, like Ms. Miller says about Mitt Romney whom she describes as a person who "roll up his sleeves, organize some focus groups and apply some algorithms to their problems."
So it is in this market. There are handwringers who don't believe the data and the fact that the market is moving higher on a regular basis. And there are others who are no longer fighting the tape and taking their chances.
When it comes to the market, we are with the momentum crowd. When it comes to society we see big problems ahead. We see the Federal Reserve doing something about raising interest rates sooner than 2014. The bond market is clearly telling us that. And we see a win or a loss by President Obama as a pivotal event, given the polarization of the electorate, between the "modernity" crowd and the crowd, that as Ms. Miller notes "wants to pray."
We see a lot of rot in the underbelly of our society that has yet to come out and that will lead to major conflicts when it is exposed. We see "functional" people who work for a living but require painkillers and tranquilizers to make it through the day. And we see lives of previously productive people who have lost everything because of addiction to methamphetamine and cocaine. It's out there. And it's lurking.
Big law firms in New York are indebted to the tune of hundreds of millions of dollars. And partners that were promised X amount of money for bringing their big book of clients to the firm are leaving. We've seen this to some degree in our neck of the woods.
At the same time, some everyday people are finding work and making the best of it. There are new segments of businesses that are catering to those who were down and out and are now trying to climb back toward a better life.
What does it all mean? It's all one big soup with multiple moving parts. Nothing is working in synchronicity with anything else. And as long as this goes on, the market can go higher because there will be no single opinion about prices. Markets like worry. And there is lots of it to go around.
The world is on the verge of becoming a cauldron of Disorder. Yet the market is orderly for now and people refuse to fully acknowledge it. This inability to compartmentalize the "world reality" from the "market reality" is consting investors money.
The world isn't likely to end well in the not too distant future. But for now the market is doing just fine.
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