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Wall Street Follies

If the 198 point rally is the best Wall Street can do, the end is indeed near. No doubt the prospect of becoming economic eunuchs inspired the bulls. Perhaps the Wall Street Steers are thinking of what happened to the American National Basketball Chicago Bull's team. Six times national champs, dominating the league for most of the 1990's and then, over the edge of the Grand Canyon. Falling, falling, falling-splat. From world champs and NBA powerhouse to league clowns in one season, just like the American stock market will soon do. From winning 60 to 70 games a season, to being on track to lose the same number, just like the American stock market will soon do. The results of the American stock market meltdown will be similar.

The 198 point rally only confirms this. First, the rally didn't include the rest of the world. Europe was sharply lower and Japan also was down. The NASDAQ fell 127 points, only to claw its way back to plus one. When I hear that, I'm reminded of a television show about a ship sinking in a Pacific typhoon. The sinking theory was that the ship plowed straight into the waves which broke over the bow. Each time the waves crashed over the bow, the main hatches were stressed. Each time, until they were eventually ripped off and the water poured into the hold. After that, the ship was hammered, one wave at a time, to the sea bottom. Each time the ship "rallied", its bow a little further under water. Finally, the ship broke apart and sank.

The American fantasy stock market, like the ship, will go down one wave at a time. Inflation and interest rate increases will crash over Wall Street's bow and tear off the main hatches. After that, the hold will fill and the stock market will begin its journey to Davy Jone's locker. Not in one huge, dramatic wave will the stock market go down. It will go down, then it will go up; it will go down again and then it will come back up again. Over time, the lows will be lower; the rises shallower, until the stock market, like the ship, breaks apart.

The Tuesday rally is unimpressive for several reasons. The first was already mentioned: the rally was strictly a Wall Street one. What if Wall Street had a rally and no one came? The lack of breadth in the market was also evident by which stocks went down, or didn't change, than went up. This is called the Advance/Decline ratio and is what's called a Technical Indicator. It's one of the signs used to evaluate market health, like a blood pressure check. This particular one measures how many stocks are taking part in the party, or in this case stock orgy.

One of the reasons I'm so hard on the media in general, and the television financial press, in particular is they are intellectually dishonest. The news media will report a stock market rally of 198 points. The populace will heave a sigh of relief, leave their 401k and mutual fund plans alone, and go back to watching the millionaire show. They will not be told about the market lack of breadth. They will not be told that in Monday's 50 point rise most stocks were neutral or down. They will not be told that the same happened on Tuesday. They have consistently not been told that this has been the case for months. Sloppy reporting or organized conspiracy? I think you know my opinion.

The media will not explain what happened or the real reasons why it happened. They will not explain the rally was an reaction to oil costing over $30. Why did the oil stocks rally. The answer in a nutshell is inflation. Even as the child king wheedles emergency oil heat aid from the Republican extremists, to aid his wife's New York senate candidacy, the stock market chose to focus exclusively on oil company profits for Tuesday. The same stock market that is down 11% because it understands the FED will raise interest rates to control inflation. The same stock market which understands that rising inflation and interest rates will send the market to the sea bottom. Americans, forever focusing on that damn DOW number, won't have a clue until the hatches pop and the water pours in.

There has been, pardon the pun, a sea change in psychology in the last six weeks. Does the stock market, which rewarded the oil stocks today, understand the true implications of what is happening? Do they realize the sharp oil price increases will have to be passed on to the consumer? Do they think these oil increases are a fluke, short lived, not happening? All the evidence I've seen indicates that $3 a gallon gasoline is a very real possibility by July 4th. Sector after economic sector is going to be devastated as the year progresses. For instance, will airlines pass on the increase through higher ticket prices. What about trucking and railroad freight rates? The list goes on and on. Either the increases are passed on to the consumer, with disruptions in budgets, market shares, lifestyles and heavy political effects, this being an election year; or, they are not, with devastating effects on corporate earnings. This is the stock markets crucible; they will be tied to it during 2000.

The Wall Street Bulls have been saying that we've entered a new economic era. This era, guided by the supreme genius/magician Alan Greenspan, is one of permanent low inflation, lower interest rates, rising corporate earnings and increasing business productivity. Of course, this rising productivity has come through intimidating the American worker, but such is the vision of the Republicans and their corporate plantation owner buddies. I guess the recent oil price increases won't have any effect out there in the real economic world. The stock market will continue its stratospheric climb unchecked. Corporate earnings won't be impacted. Alan the magician will just lower interest rates if anything does go wrong. Get real. The tide has turned. By July 4th this will be obvious to everyone.

WHO WILLS CAN-WHO TRIES DOES-WHO LOVES LIVES

There is no worse bitterness than to reach the end of your life and realize you haven't lived. -- M. Scott Peck

Doug McIntosh
18 February 2000

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-- Farouk Madjurian (fmadjurian@hotmail.com), February 18, 2000

Answers

$3 a gallon will devastate the economy. I hope it doesn't rise that high.

-- haha (haha@haha.com), February 18, 2000.

No, $2 gasoline will devastate this economy. It just has to say at $2 a little longer, that's all.

-- Bad News Bears (@ .), February 18, 2000.