Home  l  Broadcast  l  WrapUp  l  Storm Watch  l  Perspectives  l  Sitemap  l  About Us

Neither Here Nor There
by Mark M. Rostenko
Editor, The Sovereign Strategist
October 3, 2004

Stocks reversed losses posted earlier last week to close higher, staging a huge rally last Friday. The dollar continued to slip while gold rallied to levels not seen since last April. And crude oil futures surpassed the $50 level, as forecasted in these writings not too long ago.

Naturally, various and sundry Wall Street analysts continued to insist that oil SHOULD be priced at closer to $25, thereby offering compelling evidence that we are nowhere near the ultimate high of this bull market. When the “crude at $25” clowns at Bear Stearns start singing “$200 oil!” we’ll know the top is firmly in place. Until then, strap yourselves in for the ride...

Stocks had quite a day last Friday as the S&P 500 rocketed to nearly a 17-point gain on big volume. The index is now once again bumping up against the upper boundary of its downsloping trading channel. Were that channel to remain intact, we wouldn’t expect to see such action. The most recent decline should have continued lower to test the lower boundary.

Alas, what should happen rarely does, particularly when the market’s pattern becomes obvious. It is then when we should expect a surprise and it would appear that we’re on the verge of just such a surprise. Any upside progress from here and the S&P high at 1163 is likely to be challenged.

Will it be exceeded? Anything can happen, of course. I’ve long since given up on attempting to predict the behavior and madness of crowds. If the market isn’t falling, with ample opportunity to do so, why not buy it? Sure the outlook appears dismal, but if it ain’t falling, IT AIN’T FALLING. It has to go somewhere, so why not up?

Which brings us round to the thrust of this week’s essay. As market commentators, we tend to put ourselves in the bullish or the bearish camp. But oft times, reality isn’t quite so black and white. Must our market be strong or weak? Must the economy expand or recess?

Of course not. Economic history is chock full of periods lacking in much directional conviction. And markets, in fact, tend to trend only a relatively small percentage of time. Humans have a tendency to remember the more obvious features, that is - the big moves, but the reality is that markets are doing not much of anything most of the time. Witness the stock market throughout 2004, for example. Lots of ballyhoo, no progress, no nothing.

Perhaps what we’ve seen thus far will be with us for some time? Following the bubble of the 90s and its aftermath, we’ve been subject to the traditional deflationary forces that tend to arise after bubbles. Given the historical record, things should be a lot worse than they are right now. 

But thrown up against those crashing waves of decline has been a printing-press happy Fed, accommodative to the extreme. A flood of easy money was unleashed, interest rates slashed to historical lows, money was created out of thin air at a rate not seen since the inflationary ‘70s.

The result? An economy that is neither here nor there. We never saw the economic collapse that the bears predicted. Real estate hasn’t come spiraling down the drain. Unemployment, while vastly understated and certainly higher than it should be at this point in the “recovery”, isn’t all that bad, in relative terms. The decline, the aftermath of the bubble never anticipated it would come up against dingbats happy to destroy our financial foundations in order to keep the credit bubble alive for just a bit longer.

By the same token, only a fool or someone whose paycheck is signed by the government would argue that we’re undergoing an economic boom. In fact, the data continues to send mixed signals. One quarter looks great, the next not so great. Just when it looks like we’re “gaining traction”, it turns out that we’re simply sliding around in the mud.

This is the long-term possibility that we face. Not necessarily boom, not necessarily bust. While a bust is the natural outcome of a pricked bubble, the forces of bust have met up against a formidable opponent: a Fed chief committed to assuring that his tenure won’t be marked by any major ugliness, AT WHATEVER LONG-TERM COST. The net result? Not much of anything either way. At least for as long as the gig holds up.

Uncle Al is in his last days at the Fed, his final term. Think he’s about to go out doing the hard thing, putting the economy through its necessary paces, building the foundation required for genuine growth? Think again. Easy money is the name of the game as long as Uncle Al’s in charge. Whatever it takes to maintain the semblance of an economy on the mend will be done. Print up enough more dollars, offer just enough more easy-credit terms to allow our fearless Fed chief to leave the job smelling like a rose.

But bet your bum that the long-term price will not be cheap.

Oil, I don’t have to tell you, is on the rise. The CRB Index of commodities posted a new high last week, a high not seen in decades. Why? “Stuff” becomes increasingly valuable as the dollar becomes worth less and less, destroyed by hypocrites whose only concern is their reputation, and damn your children and grandchildren who will inherit this mess.

Oil isn’t on the rise due to “increased demand.” Tell me that the demand for oil is up 100% over the past couple of years. Gold isn’t on the rise because speculators are pushing the price up higher. No. Stuff is on the rise because the dingbats and hypocrites in charge of managing the paper money system are failing, and failing big. And the game has only just begun.

There’s no telling how long the easy availability of near-worthless cash and credit can continue, how long it can forestall the inevitable. To paraphrase Keynes, the powers that be can stay stupid and run the printing press for longer than you and I can hold out waiting for reality to set in.

It’s wonderful that we haven’t had to pay the piper for the excesses of the 90s. But in this world, y’all don’t get somethin’ for nuthin’. And the cost will be taken out of future growth.

I’m tired of waiting for the market to collapse, to return to reasonable valuations. Perhaps the “bargain” valuations that typify bear market bottoms will never come. But come or not, there’s no basis for sustained advance either. Thank our powers that be for preventing the inevitable decline. And while you’re at it, curse them for selling out the future.

With each passing week I grow increasingly convinced that we are in for a long period of not much of anything more than chopping back and forth, the kind of junk we’ve been sitting through all year. The excesses of the 90s will be paid for in time, but it looks as though it might be a long time. Good or bad? I don’t know. But certainly not the spawning grounds for a bull...

© 2004 Mark M. Rostenko
Bio and Editorial Archive

www.sovereignstrategist.com