Monday, June 8, 2009

Stock Market ≠ Economy

With the stock market rally finally beginning to stall, I want to emphasize (and this needs repeating) that the stock market is not the economy. Just because the stock market thinks things are getting better doesn't mean things actually are getting better. We're back to the era of irrational exuberance where nothing can go wrong. Horrible employment numbers are excused away by saying that they aren't as bad as they could be -- yes, falling 90 miles an hour to your death isn't as bad as falling 100 miles an hour to your death... but the end result is the same. This sort of perverse reasoning explains why the stock market rallied when GM declared bankruptcy ("because it removed an element of uncertainty," as if it were ever uncertain that GM wouldn't declare bankruptcy), or when General Growth Properties, one of the country's largest mall operators, filed for the biggest real estate bankruptcy in American history. Sane minds will see that this is a foreshadowing of danger in the retail sector and the possible beginning of the collapse of the commercial real estate market. The real economic pain still has yet to come.

Everyone knows Mr. Market is manic-depressive. There's no reason why you need to be too.

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