Tuesday, April 3, 2012

The Market's Cynical Response to a "Good" Economy

Just in case anybody (everybody) is having trouble understanding current market dynamics, today's response to the 2:00 pm EDT release of minutes from the last FOMC rate policy meeting in March should serve to middy matters even further.

Not to make too fine a point of it, but the Fed governors were fairly sanguine about the economy and hinted that if the economy continued to plod along at its current snail's pace there would probably be little to no need for further policy easing or, in the parlance of today's twisted environment, more quantitative easing (QE).

Upon hearing the news, the knee-jerk response would be optimistic and stocks would be expected to get a bit of a bounce, but, in this cynical environment, the exact opposite happened. The major indices had been meandering along the unchanged line, but sold off sharply when the Fed minutes were released.

Throw conventional thinking out the window. All that matters, apparently, to the wizards of Wall Street, is for the Fed to keep the printing presses well oiled and running, feeding more free cash to the banks and their brokerages, in order to keep this most unrealistic market rally ever witnessed rolling along.

The logic works thusly: if the Fed stops printing, Wall Street will no longer have the risk-free trading to which they've become so accustomed to over the past three years, so, any sign that the economy is actually improving, which would end the free money party, must be met with disdain.

It is the most cynical market response to good news that's been seen around these parts in many a year and yet another reason why most individuals have shunned stocks for so long. They simply do not make sense as sound investments when herd-like machinations can take them down in the face of good news.

Orwell would be proud, but only for a moment.

Dow 13,199.55, -64.94 (0.49%)
NASDAQ 3,113.57, -6.13 (0.20%)
S&P 500 1,413.38, -5.66 (0.40%)
NYSE Composite 8,216.54, -64.29 (0.78%)
NASDAQ Volume 1,791,503,250
NYSE Volume 3,790,125,000
Combined NYSE & NASDAQ Advance - Decline: 1841-3782
Combined NYSE & NASDAQ New highs - New lows: 250-61
WTI crude oil: 104.01, -1.22
Gold: 1,647.00, -32.70
Silver: 32.62, -0.48

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