Is the joy artificial or real?
[Here is my column for the local paper]
There is nothing like a summer stock market rally to lift everyone’s spirits. No more of that doom and gloom from last spring. The end of the financial world has been postponed. The consumer confidence index even jumped to 54.1 in August from 47.4 in July.
Yet the real economy hasn’t improved. Gross Domestic Product (GDP) contracted 1.1% in the second quarter, July retail sales fell 8.31% for a year ago, domestic investment is still falling, and unemployment remains stubbornly high at 9.4%.
“What makes investing particularly difficult now,” notes financial writer Chris Mayer, “is the distortion in prices, as if reflected in a fun house mirror. Normally, market prices should reflect underlying demand and supply. As in a vegetable stand, the prices come from the buying and selling of people in the market.
“But with all the artificial stimulus money floating around, you can never be sure of what you see. Is this a real recovery or is it an artificially ripened tomato, and hence an imposter? When the stimulus money stops flowing, will the recession get worse? It’s hard to say.”
But how is it that people’s moods are lifted or dropped with the movement of the stock market? Why should the average person have to care about such things? Shouldn’t making a living, caring for one’s family, supporting one’s charities and putting away a few extra dollars for retirement in a savings account be enough? Unfortunately, fiat inflation via the government’s printing press doesn’t allow that luxury. Now the average person is presumed to be financially savvy, managing his or her own retirement plan that will finance the golden years.
But as Guido Hülsmann explains, obsessing about finances has moral and spiritual costs. “Inflation forces them to spend much more time thinking about their money than they otherwise would,” writes Hülsmann. Investing in stocks, bonds and other financial instruments “entails many hours spent on comparing and selecting appropriate issues. They need to follow the financial news and monitor the price quotations on the financial markets.”
Of course there is plenty of investing help to be had on TV. “The talking heads are getting more creative in their rationale for owning stocks right now,” writes Certified Financial Analyst Dan Amoss. “Most money managers seem to be thinking: ‘I don’t believe in this rally, but I’ll ride it until it looks like it’s over, and then I’ll sell.’ This is the type of dangerous crowd psychology that consumes most people during bubbles. When enough investors share this Ponzi sentiment, and nobody’s investing on the basis of sober, rational fundamental analysis, the result is sometimes a crash.”
And as dangerous as all of this is for one’s finances, it’s doubly harmful to one’s moral compass. “Inflation makes society materialistic,” professor Hülsmann explains. “More and more people strive for money income at the expense of other things important for personal happiness.”
Basing your happiness on the how well your stock portfolio is performing is always precarious, especially right now when the financial markets are out of touch with reality.
