DJIA 10,000: The Prospect of a Large "Transient Bull"

No.: 
49

It is not without consequence that the Fed is creating massive amounts of money for the U.S. Treasury to leverage mega-investors and hedge funds back into financial markets on the long side. Many market observers claim Geithner’s plan will work. The question should be: 'Work to what ends?'

There is an increasing possibility — evident in various ways during the last couple weeks — that the Geithner plan may inflate U.S. equity values back into a range that would put the DJIA around 10,000 within 18 months, perhaps much sooner. (While 10,000 is not 14,000, it would constitute something close to a 50% retracement.) If this occurs, the move will be billed incorrectly as a new bull market — as though the problems that created the bear market of 2008-2009 were undergoing sufficient repairs.

What is a bull market? For short-term and mid-term traders any major index run over 25% is a tradable bull move. Indeed, the bull move underway now could evolve into one of the most consequential transient bulls of all time (a ‘mega-bear’ bounce). Granted, near-term pullbacks are probably in the offing, triggered by technical considerations once the current uptrend is breached by bad news.

The big picture fundamentals suggest that the existing macro-bear trend will be reconstituted in due season. The rate of price collapse for equities in that bear turnaround will make the last bear seem like a docile creature. When the U.S. can no longer fund the new leg of the debt-driven expansion there will be a market crisis of larger proportions than the one we've been through. When this Kodiak bear appears it will change the world for all time. Meanwhile, some people believe they can be investors rather than speculators in certain stocks at these prices — especially sound infrastructure stocks with solid dividend histories. Perhaps so.

In making these observations I am not undercutting my larger argument that the architecture of modern equity markets is intolerably unjust and needs sweeping reformation. The whole conception of a stock market based upon price appreciation is misplaced, for price appreciation equity markets almost invariably give advantage to certain elites.

The reforms that are underway currently will be worked to advantage the same crowds (in general) that were advantaged by the last 'free market' ride. Indeed, this likely outcome has been noted by certain hedge fund managers as well as other astute market observers. In the same way that free markets were gamed, the new regulatory standards will be exploited to the benefit of the few and the injury of the many. Ultimately, our nation's financial problems will not be cured until cultural reform allows a complete rethinking of how capital markets best serve the sustainable public interest. (Geither was not kidding when he came close to billing himself recently as the new Alexander Hamilton.)

At least we can be thankful that the current chaos is moving us to think more seriously about green solutions to our resource consumption challenges. Since the Internet is allowing people to archive observations of our unfolding economic history, there is reason to hope for considerable societal learning in these times — not in all quarters but in significant pockets of the population. On this basis we can hope for a brighter future. Increased goodness is out there somewhere. It will arrive after we've learned our lessons suitably and changed our ways.