Because those stock prices are not sustainable:
Stocks are overvalued and the US economy is likely to fall back into a recession next year, well-known analyst Meredith Whitney told CNBC.
“I haven’t been this bearish in a year,” she said in a live interview. “I look at the board and every single stock from Tiffany to Bank of America to Caterpillar is up. But there is no fundamental rooting as to why these names are up—particularly in the consumer space.”
Agreed – there is nothing in the US or global economy which warrants the sort of stock price run-up we’ve seen since March. Even if one wishes to keep faith with Obama and Keynesian economics, the best one could expect is that stock prices would not have fallen further than they did in March and, perhaps, have a 10% or so upswing. Right now, the S&P 500 is 64% above its March low – and there’s nothing to back it up.
From what I’ve been able to piece together, it seems that Treasury and Federal Reserve – by varied means – pumped money in to stocks in order to inflate the price. My theory as to why they did this revolves around the fact that the major banks are actually insolvent and pushing their stock price higher was the only means available to hide this fact – the rise in stocks allowed the banks to pretend they had profits, you see? What has happened now, however, is that the boom in stocks has taken on a bit of a life of its own – the suckers are really pouring in to this, the largest sucker rally since the Depression.
When will it all come crashing down? I’m sticking with March – not because I’m some sort of primo number cruncher, but because I just can’t see anyone keeping the ball floating up there longer than that, especially as I expect 4th quarter 2009 and 1st quarter 2010 economic numbers to be flat or down. Of course, it could go on longer – and, in fact, it is within the realm of possibility that the stock market will fly much, much higher – perhaps even in to record territory – before it comes down. All that depends on how much money fools are willing to put in to the market. But I don’t think we’ll see that, because the fools are really out in force in China and I expect that bubble popping to be the trigger for our stock slide…though it could be vice versa.
Its all smoke and mirrors, good people – we’re in a depression and its going to be a long, hard and slow climb out of it…and the longer we keep up with stimulus, bail outs and funny money, the worse it will get and the longer we’ll have to go before we’re free of it. Harsh as it would have been, it would have been better in September of last year if we had just let things completely collapse – we’d already be on the path to recovery, by now. But, as it is, we’re just putting off the day of reckoning.
HAT TIP: Mish’s
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