Yesterday, upon the stair,
I met a man who wasn’t there
He wasn’t there again today
I wish, I wish he’d go away…
The above is the first verse of the 1899 poem, “Antigonish“, by Hughes Mearns. Follow the link to read the complete poem and some interesting history behind it. For the last two weeks, I’ve heard those haunting words at least twenty times on the AXN channel as part of their propaganda for an upcoming horror flick they will be featuring soon. The poet, of course was referring to a ghost, however, it struck me that those words reflected how I’ve felt about the economy for a long time. No. It is not a ghost that I find haunting. But, I and many others have a haunting feeling that all is not well with our economy. It is not a ghost but “reality” that appears to us from time to time; only to dash out of sight as our government and their sycophant media bombard us with manipulated reports of private sector job growth and low inflation. We, who are often denigrated as preachers of “gloom and doom”, report on different numbers like: the increasing numbers of food stamp recipients, falling or stagnant middle class wages, the steeply falling velocity of money, the falling workforce participation rate, the recession in Europe, the slow don in economic growth in China and Brazil, and etc. BUT LOOK AT THE STOCK MARKET they say. And yes, for several weeks the news is full of reports of Wall Street setting new records.
Are the stock market and the economy the same thing? Of course not says Monty Pelerin:
Stock Market And The Economy Are Not The Same
The stock market is not the economy. Over the long term, its performance and that of the economy tend to correlate well. However, we are in a period where markets are less influenced by economics than by government interventions. The liquidity pumped into the economy and financial asset markets is highly unusual and cannot be maintained much longer. My take is that the stock market reflects Federal Reserve pumping more than an economic recovery.
If the stock market is a barometer of economic well-being, it might be useful to explore its performance in other difficult times. There is no better hard-time comparison than the Great Depression. Those who rave about the stock market as an indicator of economic health should be careful. Their ancestors might have used the same argument in 1937. The stock market closed at 72 in the second quarter of 1932 and hit a high of 195 during the first quarter of 1937. That return dwarfs our puny recovery, representing a return of 171%.
So how did that work out? The Depression did not end in 1937. Some argue that it ended with our entry into World War II. Others, and I am in this camp, argue that it didn’t really end until the mid to late 1940s. Regardless, using the stock market then as a guide to economic activity was just plain wrong. Furthermore, a lot of people went bankrupt believing the market and the economy were healthy in 1937. Nine months later, the stock market closed at 121, about a 35% drop. Furthermore, it wasn’t until the first quarter of 1946, almost nine years later, that the stock market returned to 195. It was the second quarter of 1950 before it crossed 195 and the 1950′s rally began.
I think Mr. Pelerin knows what he is talking about. Please read his entire post when you have time. He includes some very interesting history.
A talking head at NBC might say:
Yesterday, while on the air,
I met reality which wasn’t there
It wasn’t there again today
I wish, I wish reality would go away…
Ah but reality is not a ghost. It can not be denied indefinitely.
Well, that’s what I’m thinking. What are your thoughts?