On Friday a report from the government found the U.S. economy had shrunk 5.7 percent in the first quarter of 2009. GM, once this country’s largest company, will go into bankruptcy on Monday, according to another report. More than 12 percent of U.S. homes are at least one month behind on mortgage payments or actually foreclosed, said yet another report, the worst showing since offical records started being kept in the 1970s.
The Dow nonetheless rose another 96 points on Friday. Why?
In part because the real estate numbers were ignored, and the ecnomic shrinkage number, though horrible, was revised slightly downward from an earlier 6.1 percent estimate. And oh, yes, because the price of oil continued its recent upward spiral—this in spite of the fact that demand for oil is way down and excess supplies are hard pressed to find storage space.
I’ve been writing very skeptical reviews of the stock market’s recent surge, and some visitors to this site have been a tad unkind in their response to these writings. But maybe this discrepancy of views is simply due to the fact that we’ve been basing our guesses on two different standards.
This divergence can be neatly summed up in two headlines that appeared Friday in the Money section of the CNN.com website, one right above the other. These two heads read: “American dream slipping away.” And right under it: “Stocks ready to build on gain.”
This first head was where people really live their lives. The head beneath reflects reality as viewed by Wall Street, the wise ones in Washington, as well as most professional economists. Namely, that the stock market should keep rising because certain numbers seem to be improving, though the effects of these changes don’t improve (and usually even make worse) most people’s daily existences.
So then, will the stock market keep going up, as it has for the past three months? Sure, if the reality of a shriveling American dream continues to be ignored, and every bad number is interpreted by “the experts” as a good number.
I didn’t think this could possibly go on for months. I was wrong. I still do believe, however, that like it or not, reality always asserts itself, even in the stock market.