The It-Didn’t-Happen Rally

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When I was a little kid and got what I considered a bad grade (let’s say a B+) at school, I would sheepishly come home and start to tell my mom. She could tell I had disappointing news, and she would invariably ask me, “Was it a C? A D? An F?” Hearing her offer some low expectations was a relief for me, and it made me easier to tell her, “I got a B+”, and she would tell me it wasn’t so bad, and we would talk about it. For a little boy, it was a weight off his shoulders. And she did it that way every time.

I suppose, or at least I hope, it was her way of making it easier for me to tell her the news. Thus, in a strange way, telling her something bad was magically transformed into what I felt was actually pretty good news. Hearing her suggest that I might be reporting an “F” but instead giving her a “B+” made me feel good again. It was a curious, but clever, psychological trick.

I am reminded of this because of what the market has been doing for years now, which is rallying on the fact that Something Bad That Was Supposed To Happen Turned Out Not To Happen. In other words, it isn’t that something positive took place. It’s just that something negative that was suggested might take place didn’t take place, and thus people are elated and buying equities even more hungrily.

It would be like the world being gripped by fear that we were about to be invaded by Martians. Not just Martians, but Martians who made it a habit of torturing and killing humans for sport. Then it turns out some wacko made up the whole thing, and the Dow goes up 3,000 points on the jubilation to lifetime highs. The fact that there are no Martians, and there never were, is immaterial. It’s just that something bad did not, in fact, take place, so let’s all party by buying AAPL, MSFT, and TSLA.

We have a recent example of that right now by way of the virus scare. For a few days, the world got freaked out – – and rightly so, I would say – – at the effects of a global pandemic. And yet in short order, we have exploded to lifetime highs across the board. Why? Because it has been cured? Or it was a hoax? Not at all. Simply because we’re not all dead at this immediate moment.


It’s even more extreme with the NASDAQ. One would assume tech would be especially affected; after all, who wants to shove AirPods that were just manufactured and shipped from China deep into their ears? I certainly don’t. But still, people just can’t get enough of this stuff. We used to marvel at 5,000 on the NASDAQ. We’re just about double that now.


I’m almost speechless at this point. But Powell isn’t. Thus, he’ll spend today and tomorrow telling us this madness is all for his dual mandate of maximum employment and stable prices. Believe it if you like. Almost everyone else does.