Definition of Insanity

I am amazed that the US equity market can fall for the same load of BS over and over again

Stocks finished with strong gains amid optimism about plans to recapitalize euro-zone banks.

Two thoughts

  1. There is simply no source of money (and will) anywhere large enough to fill in the European debt hole.  Heck, there isn't enough money and will to fix Greece, and that is a small percentage of the problem
  2. Even if the current hole could nominally be recapitalized, it would be virtually meaningless because the no one in Europe is fessing up to anywhere near the total extent of the problem.

Countries are going to start to default in Europe, and I don't see any way around it.  The Euro isn't toast but its going to have a lot fewer members in 3 years.  And speaking of bad news, I don't see any way to avoid a massive Chinese bubble burst in the next 3 years either.


  1. Captain Obviousness:

    I think you're making the assumption that stock prices are correlated with old fashioned things like fundamentals or reality. Technicals, heat maps and momentum are all that matter anymore.

  2. NormD:

    The problem is that investors have to put their money somewhere.

    If you wake up tomorrow with $100B to invest in the next couple hours, what do you do?

    Government bonds?

    Where do you suggest?

    Stocks may be the least bad choice.

  3. David W:

    Yes, but that's one of those 'I have no real idea why the market moved an insignificant amount upward today, so let me invent something' stories. It's not about people piling into Greek debt, it's about the US stock market indices, and a 1% change.

    Not that I have any other opinion on Europe, I think the only reason people are still lending is the bigger sucker theory.

  4. Craig:

    "I am amazed that the US equity market can fall for the same load of BS over and over again"

    The majority of the money invested in the equity market is worried about tomorrow. If the story out of Europe is good enough to preserve the status quo for another day, then buy! The next tomorrow is another day.

  5. Ted Rado:

    Where to put your money has been a big problem in recent years.

    Money market funds pay practically nothing. Some of their money is invested in European banks, so there is a risk as well.

    Bonds not only pay very little, but the longer term bonds that pay a bit more are at risk if inflation starts raising bond interest rates. Unless you are fast on your feet, you will lose part of your principal. I believe higher bond yields will be inevitable shortly to be able sell government bonds. The weaker European countries already have high bond interest rates.

    CD's yield almost nothing, but the principal is not at risk and they are FDIC insured. It's agood place to safely park money if you don't need much income.

    The wild swings in commodity prices makes them a crap shoot.

    Real estate? Are you kidding?

    The only place where one can hope to make a decent return is stocks, although swings are very violent and there is substantial risk.

    If someone is dependent on investment income, there is really no alternative to stocks. That is probably the reason people are still in the market. If you can make do on your pension and social security, it is wise to stick with CD's until the storm is over.

    I feel sorry for those who are retired and have adopted a standard of living that depends substantially on investment income. If you live more modestly and don't have such dependence, you will sleep better. What a mess our leaders have gotten us into!

  6. Gil:

    Since when was Einstein an expert on mental health? Doing the same thing over and over regardless of the outcome would be the definition of Obsessive Compulsive Disorder.

  7. hanmeng:

    A"massive Chinese bubble burst"? Yeah, probably, but just wait until the "this hurts the feelings of the Chinese people" crowd gets here.

  8. Ironman:

    Don't be too amazed - stock prices are mainly being driven by noise these days. And if the noise level dissipated to more typical levels, stock prices would rise (in other words, most of the noise coming from Europe has pushed stock prices lower.)

  9. Ironman:

    Oh, and if anyone is wondering if there is a massive economic bubble in China, yes, there is a massive economic bubble in China.

  10. Rob:

    Precious metals (not just gold) - inflation is the way out of this mess

    Non-perishable consumables - stock up on good deals as they come, things you would use in a given year. It's going to be bought anyway... Use cash now before inflated costs.

  11. Fred Z:

    Investors seem to have forgotten that risk and effort free return is impossible. They buy stocks and bonds because they are too lazy to buy assets requiring risk and active management.

    Me, I own rental properties. Yes, they are a pain in my butt, and I work 25 hours a day. Even so, the tenants can always pay me in chickens and potatoes.

    All of you expecting your dividends and interest payments to continue while you sip a drink at the country club? Nuh-uh, a hard rain is gonna fall.

  12. Henry Bowman:

    The stock market has a day-to-day variation of 1-2 per cent; anything within such bounds is pure noise. Financial reporters feel obligated to attribute day-to-day variations to something: after all, that is what they are paid to do. So, they make up stuff. Ignore what they say, as they are almost invariably clueless.

  13. Orphan:

    Speaking of more bad news, housing indicators suggest Canada will soon be experiencing a housing crash of its own.

    Interesting Times.

  14. Anon:

    "Stocks may be the least bad choice."

    Quick, run to the bow of the ship -- best idea on the Titanic?

  15. el coronado:

    "It seems the only way to win is not to play" is a fine lesson for war-gaming supercomputers, and would seem to apply as well to the current investment climate.

    Until you factor in inflation, that is. The USG - the same guys who tell us our current 16%+ unemployment is actually only 9.1% - admits to 4-6% inflation. Who knows what it *really* is? So you gotta do SOMEthing. If I had more than my current $19.89, I'd probably buy land on the outskirts of Washington, D.C. That idea - "buy land just outside a growing city" - worked well for J.J. Astor, and the D.C. leviathan is going to continue to metastasize hugely no matter who's in congress/The White House.

    Unless someone can show me where the federal budget has gone down anytime in the last 45 years or so.

  16. Smock Puppet, Piloting The Economic Seas Betwixt Scilla and Charybdis:

    >> Since when was Einstein an expert on mental health?

    Gil, Einstein was a mathematical and scientific genius. By Lefty definition, a genius is a genius at everything. Why do you think they are so enamored of intellectuals?

    Einstein was also a military expert, too, you know?
    You cannot simultaneously prevent and prepare for war.

    Actually, in my experienced observation, the best way to CAUSE a war is to NOT be prepared for it. It's the best way to LOSE a war, too.

    Being unprepared is to invite your opponent to action. Preparedness gives the enemy pause: "Can I win this?". The decision to go to war always happens on the day one side or the other decides that "today" is their best chance of doing so.

  17. John David Galt:

    Forget Greece. Who's going to be big enough to finance the next round of US debt after China and the Europeans dump their holdings of it to pay their current bills? For that matter, what happens when they try to dump it but fail to find any buyers?

    The US economy in 5-10 years is going to look like Argentina's in the '70s. Even if we elect a president who refuses to sign an unbalanced budget, it's way to late to prevent runaway inflation of the dollar.

    If you have gold, take it out of the safe deposit box because FDR's 1933 confiscation is going to be repeated, too.

  18. Graeme:

    @John David Galt:

    The FED will monetize the US treasury Debt as the buyer of last resort - inflation++

    The US is already trapped within it's debt bubble with ZIRP in place there is no where else to go but hyperinflation (possibly preceded by a pronounced period of asset deflation).

    Don't think that I am crowing - this is an unmitigated disaster that will affect us all within the global community.

  19. ZZMike:

    "Stocks finished with strong gains amid optimism about plans to recapitalize euro-zone banks."

    The next day (from "Broad-based selling took the stock market roughly 2% lower for its worst performance in two weeks. ... The push lower began ahead of the open as early participants watched Europe's major bourses falter."

    Most of us realize that what the Market does today has very little to do with what it's going to do tomorrow - or next week, or even next year.

    What countries' economies do is what matters. Right now, very few of them are doing anywhere near well.

    "You cannot simultaneously prevent and prepare for war."

    Two responses: 1. Correct - you have to prepare for it beforehand.
    2. "Si vis pacem, para bellum": Vegetius, 5th century: If you wish for peace, prepare for war.

    The pages of history are littered with the remains of countries who would not, or could not, prepare for their defense.

    [BTW, that's where the word "parabellum" (a kind of cartridge, mostly pistol) came from.]