Cherish your stock market. CUZ IT’S ALL YOU GOT

Now that the frenzied analysis of the President’s SOTU speech is over, here is my 02. Notice that the first comments were not on the state of the union. Nor was it on the state of the economy. The focus was on the stock market with the comment that it has come “roaring back”. That is what four trillion hard dollars have bought.

The Chairman of the Federal Reserve talks about economic statistics and such. But his proudest moment was the comment about how the Russell 2000 small-cap index is way up.

It is past obvious to market participants that at the very highest levels of our government, the unstated policy is to get the stock market up. It is how companies measure their success. It is the basis for our sentiment and outlook on a day to day basis. And with the market all the way back to where they were before the credit crisis, the government–in cahoots with the media–can say that the crisis is over and everything is back to normal. The public doesn’t want to know how we got here, but that we are here. Mission Accomplished!

But the best part of the stock markets high level is that analysts and strategists can say that the economy is roaring back too. Since we’ve been told that the stock market is a “discounting mechanism”, why else would it be so relentless and seemingly powerful? This perception was prevalent during the run up to the end of the year and the holiday shopping season. But less than one month into the new year, the numbers are saying something else entirely. Production and consumption are weakening after the holiday bounce. The only recovery is a perceived one based solely on market gains.  Let’s look at those gains.

The market leadership for almost two years has been commodity, energy and material-oriented. Their relentless climb came on the back of a weak dollar and a flight to hard assets. Throw in a lot of Chinese hoarding and it makes for a powerful advance. But the price of commodities has advanced to the point where demand is now dropping because of price. Thanks, financial speculators!

The other area of the market that has been leadership is “new technology”. The mobile revolution has driven many stocks in just a few months and has been the latest market leadership. If speculation is encouraged, then volatile stocks certainly become very popular. Throw in the “new daytrader” who chases all manner of micro-caps, especially of the Chinese variety, and you have what many perceive to be a “healthy market”. But it is the farthest thing from it. The trendlines might be perfectly intact with technically record setting advances and bullishness, but I can now say, without reservation, that the market is totally and completely controlled. More today than at any time in the two year recovery.

I liken today’s market to the fable “The Emperors New Clothes”. In the story the vain Emperor will do anyting to look good, even to the point of being totally snowed, lied to and taken advantage of. Nobody is willing to state the obvious for fear of losing what they have, until an innocent child pipes up that “he’s wearing no clothes!” At that moment the jig was up. Someone will eventually reveal the truth and the markets and the government will suffer the consequences. It might be today at SPX 1300 or higher. 

Our wonderful market, the one that promises good times ahead and doesn’t even so much as dip, is naked, perpetuated by a flawed economic policy that will eventually and surely lead to another major economic and market disaster. And I’m not Zero-Hedging you. Remember, I was the guy pounding the table buying the most beaten down names just a few months ago, when you now free-money bulls were busy waiting for the inevitable crash, from SPX 1050 and VXX’ing yourselves into oblivion. In the meantime, we are at SPX 1300, about 25% higher than where you expected a crash.

The public will now start to get some confidence and buy thanks to media histrionics. Have you heard about the “Smart Money”? I guarantee they will be selling. So, don’t get cocky and cherish the ultimate arbiter of our nations self-worth, and maybe yours too, because it is a devilish beast designed to bury you–even with almost unlimited free money.

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