If you are one of those who have always thought of the share market as nothing but a casino, I must offer to you that whatever casino like atmosphere existed before, oh, say, 2007, is as nothing compared to now. One reason for this is that the present stock market is the province of an even smaller coterie of powerful players than before, players who are being bankrolled almost exclusively by you and me. What's more, the house money that this group of players have been handed for free is being deployed into the stock market based on factors that have absolutely nothing to do with the real economy. Short to intermediate term ebbs and flows in the stock market have always been dictated, to a greater or lesser extent, by liquidity flows, but now, as the unofficial government policy towards the dollar is to manage it into a controlled oblivion, a gambit that I believe is destined to fail spectacularly, the stock market now functions as nothing more than a kind of inverse dollar commodity fund.
Who can be surprised as the U.S. economy is on government induced life support that is barely keeping the patient from experiencing a total collapse. As a result, despite the smoke and mirrors engaged in by cretinous Wall Street cheerleading oufits like CNBC, forward operating earnings, are a fiction, and will not come close to justifying present prices. Worse still, the appalling mark to market accounting fantasy that the banks, and many others, have availed themselves of, allows for ever more absurd acts of share levitation.
But those are but mere tactics, albeit obscene ones, employed by The Powers That Be for the purpose of obfuscation. The real reason that reality will not, at least for now, be allowed to intrude, is because the stock market is perhaps the key prop employed by The Powers That Be to bamboozle the American Public into thinking that the U.S. Economy has "recovered," and that all will be as it was before the annus horribilus of 2008 cut the value of most people's equity portfolios in half. Even as the PTB have set in motion forces that guarantee a future where our purchasing power erodes faster than a seawall in a Category 4 Hurricane, they will try, at least for a time, to make those with Roth IRAs and 401Ks feel better about their prospects. In the meantime, the stock market has become a kind capital market manic depressive, down approximately 66% percent from its all time (nominal) highs from October '07 to March '09, and up almost the same amount in percentage terms in the eight months from this year's late winter lows.