Magic

The major indices here in the United States are up more than almost any other market in the world since the crash of 2009, up over 100%. And the stock markets is acting very much like it has over the past three years, except “more”.

Each year the economy (yes Virginia, there is an economy),  does the exact same thing; strong holiday season with no follow-through into the next year, until the following holiday season. Through it all, the Federal Reserve adds stimulus to the mix at almost the exact same time of the year and market participants are so well trained as to not deviate one iota from the past script.

This week is the famous Jackson Hole meeting where Dr. Bernanke thrills and chills with his plans for future stimulus and our market has run to a post crash high in anticipation of that and a Euro bailout. And it is a Presidential election which mean that the Political class is occupied. It also means that the government statistics are good, in fact better than expected. What a surprise!

But what is most important to the investor class and the computers that dominate them is the past performance of each and every stimulative effort. We have seen the hard numbers here, published by Dr. Fly, as well as a plethora of other publications that show the monstrous upside during free money stimulus and the nothingness of the times in between. So regardless of what the economy is really doing in the traditionally weak summer months or the buildup to the holiday season, “everyone just knows” that there must be some new and fantastic stimulative effort, foreign, domestic or both. And the computers that “provide liquidity” have run in one direction in anticipation and “the guarantee” that the market will run up for another six months.

What does it matter is prices are not based in economic reality or sustainable in any economic cycle. Oh, I forgot, there is no longer an economic cycle, just a stimulative cycle. These things don’t matter though the Wall Street Complex will show you how one economic statistic or another is what really dictates the market action. And Apple owns every market it is in, and is still “dirt cheap” with an almost $700 billion market value.

Policy makers know that markets are their last and only policy option. Nothing else has the slightest chance of making a dent in this multi-year deleveraging and deflationary cycle. Their inflationary push will push up prices but eventually and ultimately do far more harm than good.

Markets have been building to this time and this time is here. It is all magic, like “Obama, our President who made the stock market double”…