The horizon is not so far as we can see, but as far as we can imagine

The Market is Not The Economy

Image by Admit One

Image by Admit One

Repeat after me: “The market is not the economy.  The market is not the economy.”

Of course the market is doing well.  Geithner, Bair and Bernanke promised to put around $2-$3 trillion more into the market in various forms.  Everyone now knows that the Obama administration will do whatever it takes to turn the market and financial sector around— even if that means trillions of dollars of risk for taxpayers.

Rule of Investing: when the government puts its full muscle behind something, be sure to ride it, and don’t get in the way.

What you want to watch now are:

  • Currency Rates
    Does the dollar go up or down?  The government printing and borrowing tons of money may not look so good to foreign debtors.  Or they may decide it’s the only game in town.
  • The Treasury Market
    Same thing.  Are private investors and foreign governments willing to buy?  Or will the Fed have to buy more treasuries?
  • Oil prices
    All of this money is going to show up somewhere, and a lot of people are (literally) betting on it showing up in energy prices.

What’s probably going to happen is a technical recovery that shakes apart based on unacceptable inflation before the recovery has reached a lot of people at the middle and bottom of the economy.  Unless  Geithner’s plan fails in absolute rather than relative terms, in which case there isn’t enough lube in the universe to make what will occur even tolerable, let alone pleasant.

In the meantime, remember that the market isn’t the economy, and unless you’re connected to the financial sector, odds are you aren’t going to see much of all this money.  The banks are being bailed out, not you.


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1 Comment

  1. gan1

    Great to find this site. I missed seeing the posts on FDL.

    Agree with your points. I don’t expect the market to go up much more anytime in the near or distant future.

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