Naked Capitalism Link of the Day

Today's Link : Stock Market in a State of Denial, by Comstock Partners:

Those of you who watch financial TV or read the financial media have probably heard the current market referred to as the "nothing matters" market since it is supposedly ignoring a spate of negative news.  According to this view, the negative news is exogenous and temporary while the true backbone of the market is the so-called strengthening recovery that has a long way to go.  We have a number of disagreements with this point of view. 

First, you may have noticed that the market has not exactly ignored the problems.  The S&P 500 peaked about five weeks ago at 1344 and then proceeded to fall 7.1%.  It has since climbed back by 4.6% in a rally that looks somewhat anemic by past standards.  This type of action is actually typical of the way most bear markets begin.  Generally bear markets go through three psychological phases----denial, concern and capitulation.  Most often, but not always, the market rallies between each phase.  The denial phase is the initial downleg from the bull market high, and we are only at the start of that downleg now.

During the denial phase the majority of investors are still in a bullish frame of mind after seeing continual profits in their account and having seen the market bounce back from prior corrections.  They look upon the decline as merely another buying opportunity and think that stocks are cheap.  In addition the fundamentals during this period are still perceived as positive and any negative news is downplayed.

I fear that a dramatic slump in the so far slow recovery would make it more likely that whatever freak the Republican base nominates could win.  Unless they do something unexpected, that would be very bad.

There is also an interesting link to Scientific American on whether the great expansion after the Big Bang is a mistaken hypothesis.  That's way over my pay grade, but interesting.