More Mania in the Markets
In yet another chapter in the manic saga of global markets, stocks soared Thursday around the world after European leaders announced yet another comprehensive plan to solve—once and for all?—the deepening sovereign-debt crisis. The outpouring of optimism was given an added boost by the release in the United States of third-quarter economic figures that indicated GDP increased 2.5 percent, and the icing on the proverbial cake was supplied by news that the Chinese government would potentially add some of its trillions in reserves to help shore up ailing European finances.
It seems like only a few days ago that we were feverishly murmuring about the impending implosion of the global system. That’s because it was only a few days ago. These swings from fear of complete collapse to fear of missing out on the upside have been the norm for the past months in market-land.
These manic-depressive tendencies are unsettling, enhanced by electronic trading and rapid translation of sentiment into buys and sells. They also are a theater, if not of the absurd, then certainly of their own peculiar tendency to view the world as if reflected in those fun-house mirrors. And the media—yes, that too plays a role in amplifying the emotion, with the relentless maw of endless outlets in need of attention-grabbing headlines. There is no market news that says, “Things aren’t so bad, but they’re not great either.”
The fact, and one of the only facts, is that the world was not as broken as it appeared three weeks ago, and it is not thriving as much as market behavior in recent days would suggest. Yes, the European plan lacks specificity, as critics were quick to note. But it did signal a 50 percent reduction of Greek debt obligations, along with a trillion euros in a Eurozone bailout fund known as the ESFS (European Financial Stability Facility), which yes, involves more sovereign debt to solve the problem of too much sovereign debt. But it also is the result of a significant change in attitude and awareness on the part of Eurozone leaders that Houston, we have a problem and denying it will not make it go away. That alone should be celebrated, though it was not.
As for Thursday’s GDP number, it was simultaneously taken as proof of no new recession, and dismissed for being as good as it gets. That might be the case, or we may learn a year from now from the National Bureau of Economic Research, the official designator of economic cycles, that the U.S. did indeed “officially” enter a recession at some point in 2011 for a quarter or two. In truth, it doesn’t matter.
It doesn’t matter because for the tens of millions underemployed, unemployed, or working a job that pays a poverty wage, economic growth of 2.5 percent a quarter improves nothing. Even statistical economic growth of 3 or 4 percent likely would change little, as has been the case for the past two decades or more, when average wages have been utterly flat. The only enhancement in living standards has come from less-expensive goods and easy credit, not from growth per se in a United States or Europe that are at the top of the global affluence heap and at a loss about what to do from here. Similarly, economic contraction would have little tangible effect on the millions who are thriving beyond measure, and little effect on tens of millions more who are nimble in this economy, not particularly secure, but able to navigate the shoals nonetheless.
And the sharp swings in equity markets—down double digits last month, up double digits this month (“The best month for stocks in 30 years!”), and who knows about next month and beyond—mask the steady, quiet and uninterrupted double-digit growth of global businesses. The Occupy Wall Street movements focus on the monied class and the rewards of the bankers of Goldman et al, but executive compensation and profitability is also extreme in Silicon Valley and the insurance industry and health-care services. No one seems to begrudge Apple executives making millions, yet those rewards at the top are just as disproportionate. Granted, no one holds the iPad responsible for the near-collapse of the global economic system or massive foreclosures and layoffs, but on that last one, perhaps they should. Technology has destroyed at least as many manufacturing jobs as China ever has or will.
Capital and companies are, as many have noted, the winners of the global system, while labor and wage-earners in the developed world are at a severe disadvantage. Emerging countries are thriving. Capital is thriving, and hence financial markets ought to as well—as unfair and unjust as they may be. But the rewards are not solely pooled at the top. Living standards in the United States today are on average far better than several generations ago. Social media is fueling the protests, which means that protesters have the means to own the tools that make social media possible.
Recent equity giddiness notwithstanding, I’m continually struck by the prevalence of what Freud described as the thanatos instinct. It suffuses the financial world, and to a large extent politics and whatever constitutes the public discussion. The death drive is far more evident today than the creative, and the cynicism that all silver linings are simply glosses on dark clouds is ubiquitous. American culture is mired in negativity, but it reaches a pure distillation on Wall Street and in markets, where every move up is a call to get out while you can and every move down is proof that the world is indeed irremediably flawed and headed for a fall. The contrast with the creativity of Silicon Valley, where people believe in innovation and creativity, along with the attendant weaknesses of vanity and greed, is striking.
The drive toward nihilism is invidious, and it adds a substantial layer of risk to the financial world and markets. Stumbling and bumbling political leaders at least understand that they are charged with maintaining order and stability, both of which require constructive action. Many companies actually are improving the lives of billions, net-net. The recent rally in global markets, the steps taken by European leaders, and signs that the U.S. economy is not yet collapsing should be taken as genuine positives. That they are met with such deep skepticism, that is more troubling than the legion of false alarms that go off with numbing regularity of late.