This is another extraordinary week for global stock markets. The US market has climbed nearly eight percent in just the past four market days. Why?
Once again, the pundits look to Europe and the ongoing circus of inept politicians struggling to keep defaults from occurring on their watch. This week's announcement of non-Euro central bank swap facilities' rate drop to provide liquidity to the ECB, to be passed along to the European banking community, is cited as the reason for the rally. Not likely.
The political antics in the Eurozone will provide no relief to the inevitable defaults that will sweep the Eurozone. Nothing will prevent that from happening. The only thing the European politicians are trying to do is kick the can down the road. No one is discussing the real solution, which involves dismantling the entitlement structures and reducing the role of government in their economies. Anything short of the real solution is no solution and will ultimately fail.
But, does it really matter all that much for global equity markets? The markets have struggled to find any direction since late July even though the microeconomics of public companies have rarely been as good as they appear today. The US economy, in particular, is not falling into a second recession. The US economy is growing, though saddled with some of the most perverse economic policies in its history. Today's NY Times has a very instructive article detailing the plight of the unemployed who are at the bottom of the skill pyramid. The administration's policies have doomed these folks to permanent penury.
But, the US economy as a whole is growing. The rich get richer and the poor get poorer under the Obama regime's policies, which, ironically, are designed to help the poor at the expense of the rich. Policies like that always boomerang. The US economy will continue to grow slowly and businesses will continue to find ways to avoid hiring in any large numbers.
Remember September, 1983 when the economy produced 1.1 million jobs? That seems like a lost memory of the bad old days of Reagan-economics. That won't happen again as long as the Obama team is in place. An administration committing to demonizing job creators will find job creation a long, slow process and the many Americans that are looking for jobs will keep looking until these policies change. But stocks will do fine.