What Have We Learned?

By -

One solid year of an up market, and one solid month of the most agonizing trading time I've had in my entire life, have put me in a deeply reflective mood. Even though the January 19th high has not been violated (yet), I am having deep doubts as to my long-term outlook on the market. It seems to head higher, regardless of external news or realities.

So what has the past year taught us? I have some thoughts on this; and although these thoughts may seem grumpy, snarky, or even whiney, I promise you, they are not intended to be. Cynical? Yes. Despairing? Sure. But complaining? No. Complaining about reality is pointless. So here's what I think the world has learned:

1. Investment banks can, with few exceptions, act with impunity. Yes, Lehman and Bear are gone, but that's just a sliver of the investing banking world. By and large, investment banks entered into the crisis as winners and exited the crisis as even bigger winners. They now know there really is no consequence for negative outcomes. If they win, they keep the profits; if they lose, they will be bailed out. End of story. So I think that, far from being chastened, banks have been emboldened to act in a manner that makes 2007 look like doe-eyed innocence.

2. Financial reform isn't going to happen. Whatever gets passed is going to be feeble. Maybe they'll pass a bill demanding that disclosure statements on credit card applications be in a font size two points larger than before, but that's about it. All this Volcker rule hub-bub is only going to compel the Goldmans of the world to dispose of their classification as bank holding companies, now that the need to be in that category (with its benefits) has passed. The panic is gone, so the motivation for real change is dead.

3. Real estate is doing just fine. Think real estate is in trouble? Ask the holders of SRS how their investment is doing. Real estate isn't going to be permitted to fail.

4. The financial industry is doing fine. Disagree? Check in with holders of SKF. They, as with SRS holders, are holding on to securities at lows never before seen in history.

5. Keynesian "economics" works. On the rare occasions a government faces a crisis, they just have to "print" (well, electronically create) trillions of dollars in "money." Bang! Problem solved.

6. Buying as many stocks as you can during times of panic is like legally stealing money. Gobbling up stocks – any stocks! – a year ago was a brilliant move for those who did it. The old saw about buying when there is blood running in the streets surely has held true.

7. It's much easier being a bull than a bear. The reason is simple – – pretty much all the vested interests in the world are on your side. You don't have to fight the tide all the time. Nine years out of ten, you're going to be right.

8. The unemployment rate doesn't matter. About 10% of the public has no income, and about 20% is underemployed. Obviously it doesn't matter to equities. The government will just keep printing up unemployment checks (no matter how many extensions are required) to keep things civil.

9. The US dollar is a one-edged sword. If the dollar is weak, equities will explode higher. If the dollar goes down, it doesn't matter.

10. The citizens of the U.S. love buying stuff. It doesn't matter if they need it, or if they have the cash on hand to afford it. This is the national pastime, and it's never going to end.

To a person like me, who is rational to a fault, and who loves free markets, these cold realities are depressing beyond imagination. But I'm not an idiot; I can see what's going on, and it's time to face the facts.

Have a nice day.