The broke the 14,000 level today. Despite Bear Stearns warning that their subprime mortgage hedge fund was worthless and Ben Bernanke stating that the subprime related losses would be in the range of $100 Billion the market was up! It just shrugged off the bad news and went on its merry way.
Interestingly, regarding Bear Stearns, Bloomberg reports “It was Bear Stearns, the biggest broker to hedge funds, that nine years ago declined to join 14 other investment banks in the bailout of Long-Term Capital Management LP. Then last week, as New York-based Bear Stearns pleaded for help to rescue two of its hedge funds teetering on the brink of collapse, many of the same firms refused to come to its aid”. If you’ve never heard of Long Term Capital Management, I suggest you read the very interesting book,
When Genius Failed: The rise and fall of LTCM. It was basically a hedge fund started by some Nobel prize winners that ended up in smoke.
Going back to the stock market, when the market ignores terrible news and goes up, its usually a sign that the market is very bullish and will continue for a while. Consider that many companies are reporting bad earnings, and the stocks are not being punished.
Motorola (MOT) posted a $28 Million loss and the stock is up. Citizens Republic Bank (CRBC) announced its non-performing loans had quadrupled and it took a $20 Million write-off and its stock jumped up too!
At least the Dow Transports ($TRAN) is also hitting new highs along with the Dow Industrials ($INDU). If the TRANs had been lagging, the rally would be suspect.
We have a global credit bubble, a housing disaster in slow motion, a subprime mortgage fiasco, hopelessly underfunded government liabilities, an unsustainable trade deficit, negative U.S. savings rates, a collapsing dollar, oil depletion and creeping inflation, and yet the market is going higher!
Oh well, if you can’t beat them, join them!