Stock Market Lunacy

The Stock Market is taking off today like a rocket ship. The DJIA is up 110 points today already and up thousands of points in the last year. Reasons that is insane:

-China just announced that they can't keep buying US Treasuries like we need them to
-Unemployment is still very high and going up (according to the latest unemployment figures)
-Stocks were overpriced even before the crash
-State and local governments are quickly running out of cash
-Banks still aren't lending
-Israel's widely anticipated preemptive strike against Iranian nuclear facilities

I know, they've got it figured out. Banks will start lending again once they've got their capital requirements covered, they're just digging there way out of the hole that their real estate losses put them in. And unemployment will stay high, but that really hasn't been that big a problem so far. Retail sales are off, but not by that much. We'll be OK. The Federal government will bail out the state and local governments, and if they don't the local governments will go through prepackaged bankruptcies (makes 'em sound like you can get them at Albertsons) and will be back on their feet in no time. And stocks are worth whatever people will buy them for, so how can anyone say if they are overpriced?

It's just that for everything to work out, everything has to work out. It's too complicated and there is no wiggle room anymore.

With China's shot across the bow we shouldn't have the illusion that the federal government can bail everyone out with continued record defecit spending. So eventually the stimulus spending that has been providing jobs and bailing out local communities is going away.

And consumers won't be able to keep spending without jobs forever. Unemployment benefits keep getting extended, but see the part up above on continually growning deficits. Many of the jobless or underemployed are living on the generosity of others (such as families and credit card companies) or draining non-replenishable bank accounts.

Once the foreign money which has been financing our federal spending extravaganza dries up, we'll have no choice but to start printing money (which we've already done). This means that inflation will start taxing those who can't shield their assets.

Which is maybe what the stock market is doing, anticipating inflation. If that is true, the market might want to think twice about that. Inflation doesn't necessarily translate into higher profits, even in nominal dollars. Sometimes inflation just eats everyone alive (see the Weimar Republic and 1980's Argentina and Brazil).

And if things go wrong, if and when Israel strikes, all bets are off. The strike is supposed to be surgical, and without consequence, but everyone knows that ALL surgeries carry risks even ones where the surgical instrument is a large bunker-buster.

Right now so much has to go right that it is impossible for things to not to go at least partially wrong. The stock market is pricing for perfection. It's almost certain to be disappointed.

Post 1

Religion, politics, business, sports, science and technology. Given the first two items, I guess at times offense is inevitable, but this is not my aim. This is just to put in writing what I have been thinking. Whether anyone reads this, or agrees with me is incidental.