Years and years ago it was fairly easy to determine the direction of the stock market. Picking a stock was child's play by today's standards. Most commodities sold on a cyclical basis. So it was a simple matter to buy when supplies were plentiful and sell when they weren't. Much has changed since those days. Aside from the momentary glitches such as crop failures floods and tainted produce it's relatively difficult to see what's going on. Say what you will about Obama's leadership but he did manage to stabilize the markets in a few short years both by his actions and his inactions. The markets when he took office were headed for the 6000 mark and are now at over 13000.
Markets tend to move on fear however and there's enough of it looming in the background to make anyone nervous. The resolution over "cliff" debate pushed the markets up. Still there's a lot of fear left to be sold. We now have the debt ceiling to contend with but anyone with half a brain would tell you they won't pull the trigger on that hostage situation. To do so would cause irreparable damage to their game. That would be like giving the house keys to a teenager and telling them you're headed on a two week vacation, "See you when we get back".
There's a couple of things going on at present, actually they've been going on for quite some time now it's just that we haven't paid attention. While we were keenly focused with our noses to the grindstone the grindstone owners were busy changing the rules. I believe some of the first rules to go were how much borrowed money could be used to buy stocks. After the grand depression that mom and dad experienced our leaders saw fit to bring a bit of sanity to the game. No more than 50% of stock purchases could be done with borrowed money. Somehow that rule was thrown out. Add to that the elimination of the rules preventing investment houses and banks to merge which created much of the mess we see today. It was now open season for investment institutions to use bank funds at the roulette wheel gambling not just your checking and savings account funds but using them as leverage that bloated the loss column on the balance sheet. But for anyone who knows a thing or two about banking knows that a debt is seem as an asset to a bank. That is until the house of cards came tumbling down.
Speaking of houses those too were part of the game as we saw from the sub prime mess. Much like a Ponzi scheme you can't keep the game going without suckering in more players. With language only a well educated attorney could decipher it was easy to catch the rubes. How quickly what mom taught us was soon forgotten that when it looks too good to be true it probably is. We stood back and watched cracker box houses that once went for under $100K now be valued at a cool quarter million. But then the bubble burst. Those easy credit terms weren't so easy anymore. Those unfortunate enough to have bought at or near the peak were wiped out just like the late comers to a Ponzi scheme. And all was going well until somebody decided to cash out their chips. Soon everybody was headed to the pay out window only the House had no cash and the pay out window was closed. To make matters worse, as if nothing could be at that time, the House had bet that the players would all lose which indeed they did. The problem came when the House wanted it's pay out and those covering it's bet had no cash either.
So as you can see it's all a matter of values and perceptions of values. Throw in some greed and dump a few rules and we're back to the Dutch Tulip run. Didn't this happen with Beanie Babies too a few years back? Did I mention tomorrow is 'No Pants' day in Seattle? How fitting.