Since the market bottom in April, it has almost doubled on what appears to be thin volume. This means that not a lot of people were responsible for the ticker prices that we are all using to calculate our networths. In other words, if you recently saw your portfolio go from $10000 to $20000, you will not be able to liquidate if you desire to do so as there will be equally few people to sell to on the way down—especially if the market goes down. Right now, I think wehat we have are players afraid that they’re going to miss the boat. Hence, what you have now is accounting worth; this market is definitely not driven by fundamentals, but a technicians dream.
This leads me to think about the stimulus package. The idea behind a stimulus package is to give money to investments that otherwise so bad that they can not attract money from the market for whatever reason (last it was because the markets locked up in a panic, much like a mountain climber that finds himself 200 feet up and “suddenly” discovers he forgot to bring a rope). A flood of money can quickly disconnect the monies from reality. Disconnecting money from reality caused confusion and this confusion is inflation. Inflation is not a mere number. It is a chaotic phenomena that makes it hard to predict the future. It locks up the flow, theoretically.
However, since the markets are already disconnected from reality, maybe that money simply runs into the markets where it’s being transferred from those who can’t stomach it to those who can. Well, thank you very much—but does this really make sense? What we could have is a real economy that plods along badly and another economy, the stockmarket (and housing market), where numbers merely get run up in an accounting sense making everybody feel rich but not to the point where they spend money on either investing or consumption. Financial assets are simply considered “least bad” store of superfluous “wealth”.
Meanwhile, the dollar is dropping again, I wonder why.
This article is sponsored by Kevin of MyDividendStocks.com. For more information on building portfolios via DRIP Investing Plans, please visit his site.
Originally posted 2009-09-16 09:37:35.