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Is that all there is?


Editor's Note: The following was an instant message exchange between myself, John Succo and Scott Reamer.

John Succo: I welcome intelligent discourse that is bullish, but I am still waiting for someone to say something intelligent that is bullish aside from liquidity. I would love to know what I am missing, e.g. maybe the market is looking past all this debt because it believes Bush will be able to eliminate all entitlement programs, so the debt will shrink even though every sign is that it won't...

Kevin Depew: I can't fathom the thought that from a social mood context we are anywhere close to the elimination of entitlement programs.

John Succo: ...That's what I am saying. I have yet to hear a bullish argument that makes sense other than that the Fed will keep upping the liquidity game.

Kevin Depew: Along those lines, thinking about it over the weekend after reading, Saturday I think, Joseph Nocera in the NY Times discussing energy opinions and T. Boone Pickens, about the best bullish argument is that there is some type of energy product that eliminates crude oil without causing a total re-fabrication of everything that needs crude oil to run. Honestly, an analyst made that argument in relation to the two possibilities (One, we run out of crude - the Matthew Simmons view, or Two, it becomes increasingly expensive to get what crude there is out of the ground). The argument: we've always found a way to find more crude, or reduce the cost of refining what crude we have in the past, therefore we always will. That is the bullish case; akin to aliens landing and giving us some kind of fuel key or something.

John Succo: But the run-up in stocks has happened despite run up in energy prices, which is just an additional problem. That being said, I know of no such thing, hydrogen cars are miles away and we could be doing tons right now to reduce consumption but we are doing the opposite.

Kevin Depew: Yes, that's the point - no one does. But that's the logic of the bullish case - Fed liquidity, crude oil, whatever. "We've always been alright before, therefore we will be alright again." We are special. Unlike EVERY other historical case since the beginning of recorded history, we are too special for anything other than the best case outcome to happen for us.

John Succo: But the probabilities say that we have just been lucky.

Scott Reamer: All true. The political forces/sentiments reflect the underlying social mood - which is highly optimistic. Thus, politicians 'giving stuff away' via entitlements, etc., all while the real economic conditions of the country deteriorate significantly and no one notices/cares because they are so optimistic that they ignore it or believe that the government will step in and make it better. This is the same type of social mood that causes people to write that you should buy every catastrophe because it's always worked. EVERYTHING has always worked since 1934. EVERY event, macro data point etc. has worked not because of the data point or the event itself but because the major secular trend has been bullish.

John Succo: Americans are so optimistic. Wars in the past have been won so they think we can't lose.

Kevin Depew: Yesterday, with my parents in town, I saw a bus nearly mow down 20 people. We were in a group that due to a subway closure, about 35-40 people, were crossing the street from one subway station to another on 86 & Lexington. I was watching and waiting for the light since my parents are not especially eager to dash across the street against a light in New York City. Anyway, this one person in front decided to cross against the light and so, without looking, about 20 other people just followed right behind. I explained to my folks that that is exactly how markets work. Herding behavior. That is also what passes for risk analysis in our time - "Hey, the guy in front of me is crossing, so the street must be safe."

John Succo: Yes. I have used that analogy before. Seen the same thing. Unreal.

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