Sunday, February 22, 2009

Can You Feel the Hope?

Sometimes hope is the problem, not the solution. So says any analysis that is based on contrary opinion.

Good contrarians who want the market to rally are waiting for more people to lose hope, and thus to give up on stocks and the stock market.

It may look bad out there-- and it is bad out there-- but too few of us have accepted the new reality. Too many of us are holding on, keeping our spirits afloat on an irrational tide of hope.

Bill Clinton notwithstanding, we do not need uplifting rhetoric from President Obama. We need more despair.

But, you will say, Obama has been talking down the economy from the beginning of his presidency. That is not the whole story.

Within Obama's ostensibly downbeat rhetoric is a message of hope. When Obama says that things are bad, he is trying to help people to keep on hoping, despite the evidence. Obama is telling us how bad things are because he is promoting his gospel of hope as the cure for the horrors perpetrated by his predecessor. He is peddling an odd mixture of blame-shifting and false hope.

In the real estate market-- as I have been hearing-- false hope means that people set unreasonably high prices on their homes and refuse to negotiate when a low offer comes in.

False hope tells us that if we wait long enough and if we believe fervently enough, then the good times will come roaring back.

But presidents are not cheerleaders. A president effects policies that will or will not work to solve the financial crisis. If his policies are wrong, he can either change them, or start selling hope.

Reality-- that is, the markets-- have not expressed any confidence in the Obama program or the Obama administration.

As many of our best thinkers proclaim disbelief in the markets, the markets will have the last word.

The question is not whether you believe in the markets, but whether the markets believe in you. Only the most arrogant and insolent among us imagine that the markets care whether or not we believe in them.

So, while investors have been dumping stock, I suspect that the general population is still hanging on. Having bought the dream and the vision of Obama, and having voted for his saviorship, they are not ready to give up.

In the latest Newsweek Jonathan Alter does his best to induce people to keep on hoping. Calling Obama the nation's shrink, Alter declares that this fine and intelligent man will return our confidence and our animal spirits. Link here.

It is strange that Alter conflates the role of president with that of shrink. But not that strange. I have long suspected that the overuse of psychoactive medications has prevented us from feeling despair, and from respecting it sufficiently to learn how to deal with it effectively and constructively.

Despair is not always the wrong emotion. There are times when not feeling despair means that you are out of touch with reality.

When people give up on the economy, when they abandon hope, stocks will become so cheap that they will become irresistible. Then, and only then, will the market mount a significant advance.

As long as people cling to hope, we are not close to the end of the bear market.

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