Surprise, the Spanish Inquisition, and Dow 20,000


[The door flies open and Cardinal Ximinez of Spain [Palin] enters, flanked by two junior cardinals. Cardinal Biggles [Jones] has goggles pushed over his forehead. Cardinal Fang [Gilliam] is just Cardinal Fang]

Ximinez: NOBODY expects the Spanish Inquisition! Our chief weapon is surprise…surprise and fear…fear and surprise…. Our two weapons are fear and surprise…and ruthless efficiency…. Our *three* weapons are fear, surprise, and ruthless efficiency…and an almost fanatical devotion to the Pope…. Our *four*…no… *Amongst* our weapons…. Amongst our weaponry…are such elements as fear, surprise…. I’ll come in again.

[The Inquisition exits]

Chapman: I didn’t expect a kind of Spanish Inquisition.

Hey, how about Dow 20,000? Yes, that sounds loony given what we’ve just been through — collapsing brokers, seized credit markets, massive real estate foreclosures, auguries of a depression, etc. — but sometimes the path of least resistance for the markets, at least in the short run, is the one no-one is expecting. And no-one is expecting a big jump higher in the U.S. indices through the balance of the year.

Granted, there are lots of things the market isn’t expecting — declaring all stocks fairly valued and closing for a fortnight, for example — but there is such a surplus of bearishness right now that one path of minimal resistance could be a moon-shot.  A piece in this weekend’s Barron’s makes the case as well as anyone:

[Market strategist James] Finucane has long kept score, carefully cataloging predictions made at past economic inflection points. He points out, for example, that Greenspan contemporaneously described the Long Term Capital collapse in 1998 as the worst crisis he’d seen in his lifetime. Time magazine wasn’t being intentionally ironic when it called the ad hoc government group cobbled together to grapple with the 1994 Mexican peso crisis the Committee to Save the World. Financier George Soros was just as downbeat after the 1987 stock-market crash as he is today, each time predicting a depression.

Why is Finucane bullish? For one thing, he observes that "governments and central banks have a clear incentive to promote growth, so to bet on a prolonged slump is to bet against the government, markets and human nature." He also takes comfort in a host of technical factors, including liquidity. Money-market cash, for example, has soared to $3.45 trillion, versus $2.2 trillion at the market low in March 2003. And U.S. domestic equity funds have seen a record nine consecutive months of net outflows, a skein that probably will hit 10 months when the Investment Company Institute releases its February numbers. The previous record was eight months, following the 1987 stock-market crash. The Conference Board Consumer Expectations Index is at a 17-year low. The Reuters-University of Michigan Consumer Confidence Survey is at its worst level since 1992. The American Association of Individual Investors finds small investors more bearish than they’ve been since 1990. And on and on.

Have we lit the fuse for a speedy bounce much higher, perhaps to Dow 20,000? It strikes me as unlikely, but then again, it strikes me as even more unlikely what the nattering nabobs of negativism are saying about the collapse of monetary policy, the irrelevance of the Fed, the death of the consumer, and so on. And even if the worst predictions are right, and we are entering recession-turned-depression, it’s worth remembering that the U.S. stock market did very well, in spurts, during the Great Depression.

Finally, and just because I feel like I owe it to people, here is the great Monty Python "Spanish Inquisition" skit.


  1. So betting on a long term slump is betting against the government? What a way to analyze a stock’s performance!
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