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.