My late mother always used to say that the anticipation of Christmas was a major part of its allure. C.S. Lewis capitalized on that truth in The Lion, the Witch and the Wardrobe by making the White Witch’s evil spell on Narnia mean that it was “always winter, but never Christmas.” Heinz used the power of our anticipatory feelings to its advantage in the following commercial (using Carly Simon’s classic song – you can view a rare Simon live performance of it here). Even though it’s just ketchup, albeit very s-l-o-w ketchup, it works.
Anticipation has a negative counterpart, of course. It’s dread – the feeling that you know something isn’t quite right, you fear it’s bad (and maybe really bad), but you still aren’t quite sure what will happen or how it will happen. Terror seems on the way. Horror is possible, even likely. But, for now, all we have is a foreboding dread.
Does that feel familiar?
The markets keep melting up, with the Fed renting financial stability for a mere $85 billion per month. Obviously, there wasn’t rent control, though the view can be quite nice.
ZIRP has forced money – lots of money – into stocks. They are the best house in a very lousy neighborhood. There’s a bit of confidence expressed in the numbers, but even those who are at least somewhat confident have misgivings about it. So we have been trading at or near all-time highs (at least nominally) and are heavily overbought, but aren’t euphoric.
After Chairman Ben suggested yesterday that ZIRP might not be perpetual, which we already figured we knew, markets got oh-so-jittery. Maybe. Of course, what Bernanke really wanted to talk about was Congress and its insistence upon slowing down the recovery – such as it is – via spending cuts and tax increases. He added that the stuff Congress has done hasn’t helped much to fix the budget problems longer-term either (“fiscal policy at the federal level has become significantly more restrictive”). And when Fed minutes released later in the day disclosed that some officials were prepared to start pulling back on the program as early as June (when the FOMC meets next), the darkness seemed to roll in even more heavily and more palpably.
Joe Fahmy calls the overriding market emotion extreme fear, and it is being expressed by pretty much everyone – longs and shorts, bulls and bears, frenzied traders and terrified bystanders. But I think dread captures the sense better. We’re 4+ years into a cyclical bull market within a secular bear cycle. That isn’t supposed to happen. We haven’t suffered a 5 percent down day in nearly 200 days. We haven’t seen even a 2 percent down day this year. That isn’t supposed to happen. The economy is doing better and employment has even improved a bit but few of us feel it while many folks have stopped looking for work. That isn’t supposed to happen.
Yet I agree with Josh Brown that Bernanke, as a real expert on the Great Depression, is rightly concerned about a premature tightening as in 1937-1938, just as the economy was finally beginning to move forward. I don’t see him as willing to risk that happening again — at least so much as his power allows. Accordingly, if I’m guessing, I’m guessing that it still doesn’t make sense to fight the Fed.
A major correction still seems necessary to me. Valuations need to be much lower to fuel a new secular bull, I think. But it doesn’t need to happen now or even anytime soon which, obviously, makes investing and trading both exceptionally difficult right now. Except for those few who are whistling past the graveyard (and proclaiming the advent of the next secular bull market – as if), everybody’s dreading a looming ugliness. We’re sure it’s out there. We just don’t know when this dread is going to turn into something worse.