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A Garment Formed Along the Bias

By Henri - Posted on 20 February 2009

Or how the Numbers Cannot do Justice to the Tide that Will Not Rise

I have heard a lot of the better analysts on Wall Street miss the mark lately. As usual I have formed an opinion as to why that is such a frequent event these days. My opinions are formed within my own perceptions. So this may not be any more accurate than the experts fishing to find the depths of a DOW in free fall. But I live by my opinions, as do most of us organic matrices of cells.

We have all spent most of our lives in times when the Dow went down only for short periods of time. It has acted more like a bobber without a fish on the line. Only this time we may have hooked Leviathan. The bobber is under water and still headed down. Maybe we are not asking the right question. The question is not, why is the DOW still headed down? But, is our line strong enough to stop it at any point.

The bias of the DOW toward rising has been derived from a philosophy of economics that says expansion is good and contraction is bad. That is easy to understand because in times in which the economy is expanding it is easier to maintain comfort. So we have constantly fixed the economy when it headed down. Pulling the line back up against opposition caused by various recessionary forces has been relatively easy since WWII. Monetary policy has always worked before, hasn’t it? Maybe not!

This time though we may even have hooked on to the real sea monster!

Trying to bring that critter back up with double ought line will be tough.

The problem is we have not had a real expansion since before the rise of the Dot Com bubble. If your bobber is only a bubble it tends to disappear altogether. You are left with no way to tell if there is something alive down there or just a huge dead object. So for the last twelve years we have been living with the illusion of a rising tide. Our bubbles rose along with it until we hooked into a big piece of reality again. Nothing can grow forever.

Some are actually calling for us to abandon the ship we are in, which is a certain recipe for disaster. First you throw the Rod overboard. Then you quietly steer toward land and hope that what is down there isn’t really all that hungry. Of course you could cut the line but in this case we have been told there is no time to waste on finding the knife.

What will come out of all the hasty actions taken in the first wave of recognizing that we have a problem is still uncertain. What is certain is that if the beast we have awakened does not eat us it will not be due to the wise planning of our leaders past or present. It will be because it has gorged on the far easier prey surrounding us in the smaller boats that are so much easier to sink.

Dow 4000 is looking like more of a possibility than Dow 21,000 these days. Fear is shrieking out the windows and running down the streets of every capitalist country. Maybe unfettered free markets can give birth to some really monstrous things after all. The current destruction of wealth is only one of them.

Let us hope that war and other equally vile human responses to discomfort do not take over if our stimulus fails. That is usually the real threat lurking under the surface of hard times. Things could get a lot worse before they get better.

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