Tuesday, August 11, 2009

On The Line: Credibility

The equity markets are at another one of those "critical" junctures.

I use the quotations because the markets are always at another one of those "critical" junctures, and I just laugh to myself as I wonder at how critical can "critical" be. But maybe this juncture is more critical than others because after multiple bubbles and tremendous wealth destruction, analysts are once again pounding the table that the "mother of all bull markets" lies ahead, and investors, who have been burned for 10 years running, are being asked to come to the party. Again!

But this party is fraught with all sorts of problems, and the least of which is the big disconnect between the fundamentals, which are improving, and the 50% rally from the March, 2009 bottom. The point here isn't to argue that such a move is justified or not, but to suggest that most investors remain wary of Wall Street and all it represents. After 10 years of losses, Wall Street doesn't work for most people. Like the bailouts, Wall Street has become and is seen for the privileged few.

But what is really at stake here is credibility, and this is the "critical". The pundits need to get this "call" right, and that is going to be hard to do. Why? Because historically, the consensus rarely gets it right.

Simply put, Wall Street isn't trusted. And why should Main Street trust Wall Street? After all, it isn't like their interests are actually aligned. After years of losses, why would the retail investor trust Wall Street? After being unable to foresee the largest financial disaster of our generation, why would the retail investor trust Wall Street? Wall Street is being blamed for the crisis, yet Wall Street was the first to benefit from government handouts. Once again, why should Main Street trust Wall Street to get it right?

So the rally that started in March, 2009 is at a "critical" juncture. It isn't critical because somehow another 10-20% tacked onto the S&P500 is suddenly going to make Main Street believe in Wall Street. Main Street will still be underwater and by the way, Main Street is too busy building a fortress around itself to worry any longer what happens in the Dow Jones Industrials. Yes, we would all like to see our 401K's and IRA's grow, but if it is one thing we have learned over the past 10 years it is that the riches of Wall Street can be rather fleeting. Main Street has already lost too much in the values of their homes and the values in their retirement accounts for any of this to make a difference. In a way, I suspect Main Street has become indifferent.

However, this rally and its continuation is more critical for the punditry. Their credibility, which is rightfully very low, is at stake like never before.


dacian said...

I get your point; there are plenty of moral arguments regarding what's happening today, which I understand and support. I have a question next to yours: why would Wall Street care about Main Street? They create and leave in their own reality (PER, analysis, CDS, rates, FOREX, etc.); yes, they sell stories to Main Street and that's a point I understand, but other than that? It seems like they sell stories to governments these days instead of Main Street; so as far as there is someone to buy their story, it's all that matters for them, right?

Stock markets are not about morality; Wall Street doesn't care where from the money it's coming and who's at risk for those sums. Those money land in a way or another on the balance sheet of some companies listed, so this is all they care...

Guy M. Lerner said...

A reader passed along a link to a column by Paul B. Farrell over at MarketWatch, and it is in the same vane as this story.

Go to the story by clicking here.

Guy M. Lerner said...


Hi there!

You pose: "Why would Wall Street care about Main Street?"

I would say why would doctors care about their patients or health in society in general? It doesn't have to be a perfect, utopian world, but the purpose of Wall Street is that it is has become one big casino as opposed to a mechanism to efficiently allocate capital for the betterment of society and mankind. High brow stuff but isn't that what is happening in this country anyway?

A follow up to my article should be how desperate we are in this country to have higher asset prices and how we need to have higher asset prices.

dacian said...


Wall Street is not the doctor of Main Street. But I'm not that good at words as some talented bloggers out there.

Here is what I meant by my comment; I think it illustrates very well what I was saying (these people don't care, they live in their own reality)


Guy M. Lerner said...


I don't mean to say that Wall Street is the doctor or has to take of Main Street. I was trying to point out that "Wall Street" most provide more value to society than trying to generate money for itself; what is the purpose of those institutions we associate with Wall Street? Are they casinos to generate money for themselves? To some degree they are businesses and should generate money for their shareholders, but on the other hand, they also have a more a responsibility to do the right thing for society at large and that isn't clear at this point in time in my opinion.

TraderMark said...

Gosh, I am glad I don't have a star rating system. I can only imagine how many 1 stars I'd get for my "us vs them" rants... ;) especially since I have a big readership in NYC, London, and Singapore. lol.

TraderMark said...

dacian, my comment to you is wall street need not care about main street. Main street is the host
Wall street can choose to feed on the host as much as it wants... as long as the host doesnt care. The problem now is the host is represented by government. And the government is helping Wall Street feed on the host. Even if the host doesn't want it.

Eventually the parasite will die if (a) the host notices or (b) the host dies. The parasite would of died last year... if the "free markets" would of been allowed to happen. Or put in your world Darwinism.

We have a culture where we think we need all these financial innovations to somehow live. As if the US of 20 years ago or other countries are backwards nations who cannot live with a financial elite.

That elite would of killed themselves off if not for the govt stepping in to save them last year. I dont think the hosts would care one bit and no I dont buy the world would of ended if we did not save 3 i-banks and 3 commercial banks. We would of suffered a lot of pain but the govt could of backstopped every dollar in the US if they wished, but said we care less about the banks.. if they fail we will guarantee your money. Then you would of seen what happens when the parasite over reaches.

We were not allowed to see that happen.