"What Looks Like A Rally May Just Be The Elites Passing Money Among Themselves"

Tyler Durden's picture

Authored by Chrstopher Caldwell, originally posted at The FT,

Why are citizens of the developed world looking a gift horse in the mouth? The Dow Jones Industrial Average rallied beyond 14,300 points this week, passing the highs it reached in 2007 just as the world economy was starting to wobble. Sure, there are reasons to be sceptical about the Dow. It is weighted, rather arbitrarily, by share price. But at least it is a quantifiable index of something. We look at 1954 – the year the Dow returned to its 1928 pre-depression high – as marking an epoch. And yet, this week, investors and pundits warned us not to read too much into it.

They have a point. In the half-decade since the western financial system almost collapsed, the relationship between stock markets and the “real” economy has seemed more tenuous. The Dow owes some of its robustness to expectations of a strong Friday employment report.

Then again, European stocks rose to a four-year high following a rise in unemployment to 11.9 per cent. Other solid-looking economic correlations are melting into air. The US property market rebounded in 2012, according to the Case-Shiller index, but the Yale economist who devised it, Robert Shiller, warned in January: “Any short-run increase in inflation-adjusted home prices has been virtually worthless as an indicator of where home prices will be going over the next five or more years.”

Part of the reason people get less giddy about the Dow than they did five years ago is because they have learnt a bit about inequality. They suspect, more than they used to, that significant developments in the economy go on over their heads. What looks like a recovery, a rally or an increase in consumer confidence may just be the effect of elites passing money among themselves.

Most western leaders hold power today because they weren’t in power during the bleakest days of September 2008. (Germany is the important exception.) They claimed a mandate for radical action, but the economy stumped them. So they have been radical on non-economic matters instead: Barack Obama with healthcare reform, David Cameron with gay marriage and Ireland’s Enda Kenny with abortion. If you were to examine their rhetoric of a few years ago, you might suspect these initiatives were hocus-pocus. Their economic policies don’t differ much from those of their predecessors.

The West’s leaders are vulnerable to the accusation that the policies they lay out on behalf of society as a whole are benefiting only a small group. Joseph Stiglitz, the Nobel Prize winning economist, accuses the Obama administration of trying to rebuild the economy from the top down, not the bottom up. The Occupy movement and the Spanish indignados filled squares with young people eager to make a similar point. Last summer the leftwing Syriza movement won a quarter of the seats in the Greek parliament. In effect, party leader Alexis Tsipras asked Greeks not to take seriously the warnings that Greece would be cut off from the European financial system if it rejected austerity, arguing that they were cut off from the fruits of the system anyway. The strong performance of Beppe Grillo in Italy’s elections is a sign other countries’ voters are willing to call the system’s bluff.

Remedying inequality is harder than it looks. Unless you want to govern like a communist, you must work with existing institutions and social customs. That means you can wind up making society less equal. In the US, the first-time homebuyer tax credit, broached by George W. Bush and continued by Mr Obama, lured more people into the housing market. Those who bought in poor states – where property was hard-hit – generally fared badly, sometimes seeing their house values fall by more than the value of the credit. People who bought in wealthier markets got their good investments subsidised.

Similarly, in the latest issue of Foreign Affairs magazine, the intellectual historian of capitalism Jerry Muller argues that the age-old Washington remedy for inequality – “investing” in education – may actually exacerbate inequality. Prof Muller quotes the late political scientist Edward Banfield in The Unheavenly City Revisited: “All education favours the middle and upper-class child, because to be middle or upper class is to have qualities that make one particularly educable.” Education is a good that benefits the already well-positioned, rather as stimulus tends to benefit the cronies of those in government.

A sense that some, but not all, are benefiting from the stock market’s rise is what has muted the response to this week’s news. The US Federal Reserve has added more than $2tn to its balance sheet since 2007. In general, that tide of liquidity ought to lift all boats in the harbour. But when the harbour is an equity market, you won’t find your yacht lifted unless you own one.

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kaiserhoff's picture

Musical chairs is so much fun.

Why doesn't that game go on forever?  Oh, right.

King_of_simpletons's picture

It will be fun to watch these elites devour each other when the piper has to be paid. They will not have "money in the sidelines" to jump to their rescue anymore. Now they wait for mom and pop to get in. If that doesn't pan out, it's cannibalism time.

ZerOhead's picture

If you build it    (equity/bond bubble)

They will come   (jobs and prosperity)

~ Allan Greenspan  (Cargo cultist and former Fed Chairman)

IPA's picture

I know the market is expensive, but I find it hard to believe it is a bubble. None of the people I know are buying stocks, have any interest in the stock market and Yahoo has numerous stories along the lines of, will this really last and is it time to sell. When I see headlines like hurry and buy, analysts touting and exclaiming why the s&p will go to 2,500, once it gets to 1,600 and when my friends start buying individual stocks and telling me about their gains, and the market makes a more parabolic move. Just not many classic signs of a bubble. There have been several articles on zh recently about retail outflows in the market. Does that sound like bubble formation? 

I do realize most of my friends participate through 401k/ mutual funds.

francis_sawyer's picture

 "Now they wait for mom and pop to get in. If that doesn't pan out, it's cannibalism time."


Mom & Pop will still end up paying... In the end ~ they'll just pick a winner & a loser... Loser gets everything 'monetized' by the Fed and slithers in to the shadowy parts of the opeation... Grandma's catfood goes up... Winner gets to 'monopolize' whatever assets are there for the taking & control prices... Oh ~ & I forgot to mention that one of them loses their job... 

disabledvet's picture

don't know why you were down arrowed for that one. of course as i coined the term "inside every trader is a market timer waiting to jump out!" so i can now coin "inside every short seller is market maven screaming BUBBLE!" you have to start by educating yourself (no better place to do that than here...the ONLY place in financial media to do that actually) and then further your research to gain an understanding of what the difference between an equity, a bond and "other marketable securities" is. Buffet is a open subscriber to the Benjamin Graham theories: http://en.wikipedia.org/wiki/Benjamin_Graham Buffet became one of the wealthiest men in human history because of that...so that sounds like a good place to start. my favorite though is this guy: http://en.wikipedia.org/wiki/Peter_Lynch while many others would follow in his footsteps few....actually NONE insofar as mutual funds go have ever actively managed as well. and there are MANY similarities to the 80's and right now actually...the stock market is suddenly off life support, the dollar looks good for the first time in decades, we're coming off a needless and needlessly provacative war, we may be entering a far more dangerous conflict. deficits are unbelievably high. unemployment is God awful...no one believes in the market, commodities have had an extraordinary run, real estate has been considered "the only safe play" for some time, etc...etc...etc. the one thing missing (so far) is "jobs numbers like under Reagan." or..."you can blindly buy gold and declare the end of the world is nigh!" as the magazine The Economist used to say back in it's "golden days" (the 80's as well.) i am of the opinion that this is a (temporarily) bad time to be in equities...and so far i've been totally wrong. but i'm not a short seller so i'm not going about demanding "Dell Computer give me all their billions in cash or else die" like "the Big Guy's" who have been massively shorting treasuries for the past decade have been doing.

Orly's picture

"...the stock market is suddenly off life support, the dollar looks good for the first time in decades..."

Tell me you forgot the </sarc> tag.


IPA's picture

I know why I was down arrowed, I usually read this site logged out so I can decide for myself the validity of others thoughts. I think the market is in a bubble, but I hear people use the reasons for gold not being in a bubble to explain why the stock market is in a bubble... my taxi cab driver is not a day trader right now, that is all I am trying to say. 


Found the article of recent the p/e graph somewhat down the article... remember markets can stay international longer than you can stay solvent, or something like that.


Vlad Tepid's picture

This bubble is not generated my "consumers," like times previous.  It's generated by Fed liquidity (Funny Money). The gold bubble (which isn't) is a function of Gresham's Law. You must not read this site logged out too much if that passed you by.  

ZerOhead's picture

In the case of TBTF's...

Reap, reap, reap...

Kassandra's picture

More like..

Rape, rape, rape...

e-recep's picture

the fight of the fattest cats usually ends up in large scale wars.

Downtoolong's picture

I've been calling the process playing with themselves. As it turns out, even that isn't nearly as funny to watch as I thought it would be.

Chupacabra-322's picture

People are waking up, and the only “anesthetic” they can use to put us back to sleep is another demonetization stunt. Their tactics are getting old and repetitive, and in the past few events they’ve manufactured, we can clearly see the unorganized haste at which they are operating at. They’re nervous and becoming sloppy, so we have the upper hand at the moment people. The awakening has caught them off guard in ways I doubt they could have even possibly foreseen. If we stay observant, their play book will become useless.

Hongcha's picture

We've topped right here, right now.  They may gap it to 156 SPY on Monday but that's it.  I'll add to my short if they do.  

That fucking 1-year chart is unsustainable except to a madman or a crack addict.

The problem is the 'ramp and camp' shit which causes shorts, including myself, to be mighty tempted to cover yet again...

And when it turns, boys, there will be a mighty hard fight out of the exits.  The Fed morphine drip is the ONLY sustainance.  We could easily wake up to a 5% gap down.  Say the word, Fed...

eatthebanksters's picture

I heard Bernanke crack pipe is close to being burned beyond functionality...

spinone's picture

You've got brass balls Hongcha.  The FED has a printing press, and they haven't lost a fight yet. 

Fishthatlived's picture

"Remedying inequality is harder than it looks." 

And why is it necessary to remedy it in the first place? Is that really the job of the federal govmint?

Bam_Man's picture

'From each, according to his ability. To each according to his need.'

History and human nature be damned.

eatthebanksters's picture

Long live Hank Rearden, Francisco D'Anconia, Dagny Taggart and John Gault!

absente reo's picture

John Gault?  Who is he?  I think you mean John Galt :-)

fourchan's picture

when is part 3 coming out?

Law97's picture

It is the job of the people to tell their government to remedy inequality....when the governmet itself IS the cause of the inequality.


What people forget is that artificial wealth redistribution can happen both ways, not just from the top down but also from the bottom up. 

km4's picture

What looks like a rally may just be the effect of elites passing money among themselves

Nail meet hammer !

The US Federal Reserve has added more than $2tn to its balance sheet since 2007. In general, that tide of liquidity ought to lift all boats in the harbour. But when the harbour is an equity market, you won’t find your yacht lifted unless you own one.

phat ho's picture

"Long live the oligarchs" and 'this way to the life boats'

disabledvet's picture

here's the book about them: http://www.amazon.com/Richistan-Journey-Through-American-Wealth/dp/03073... no i'm not one of them. and no "they don't have life boats" either. they have "life yachts" to escape from their 300 foot long ships. YOU and I have "lifeBOATS." there is a fly in the ointment however...but you must read below before i will tell you.

gould&#039;s fisker's picture

I didn't think the market needed a reason to go up anymore.

Atomizer's picture

BRICS vs. Uncle Ben one minute Reserve Currency rice dish.

New Chinese president Xinping to attend BRICS summit

Winston Churchill's picture

2013 is turning out to be just as monumental as 1913 was.

2014 will be to 1914.

disabledvet's picture

still not giving it away (keep reading)...."but what you are talking about is the Middle East right now" in my view. http://www.pitt.edu/~pugachev/greatwar/ww1.html

Kirk2NCC1701's picture

Only if the Elite in The City create another Lusitania event, with NWO types over here helping along.  Different 'donkey' this time, but same 'Pin the Donkey' game.

Atomizer's picture

Raises hand. Me,me,me. Can I wear the first blindfold in this next game?



Kirk2NCC1701's picture

Only if they create another Lusitania event.  Different 'donkey' this time, but same 'Pin the tail' game.

phat ho's picture

assume the crash position....

phat ho's picture

er, excuse me; resume

ekm's picture

Do you guys understand what I've been saying?

Even MSM is pushing the same line.


Money has no more meaning, because there's too too too much of it.

fonzannoon's picture

somebody has to hit the sell button right ekm? Those who panic first win right?

ekm's picture

I have already panicked.

I am 100% cash, after listening to David Stockman's interview to Casey Research last year.

I am only waiting.

Bingfa's picture

+1  It's not a matter of "IF"

It's "WHEN"

              It's going to be swift

ekm's picture



This is why I say, it's over. Money has no more meaning for the elites because they have too much, liquidity bubble.

If you have $50k, it's ok. If you have $500 million (in cash or treasuries), you are screwed or ............financial war.

dark pools of soros's picture

You're missing the control angle. When they have their next event and let inflation stretch its legs in the states, the elites don't feel it, and those with 50k are screwed.

The next step is widespread inflation, not some crash towards fundamentals

kaiserhoff's picture

If it's weighing you down, feel free to send a ton or two to me.

l1b3rty's picture

Actually moving the money would be too much work. The algos are in the hotseat...


swissaustrian's picture

Corporate stock buybacks to allow insider options excercises at records prices, so execs can immediately sell thereafter. That's the reason for record stock buyback programs and record insider selling.

dark pools of soros's picture

Exactly - anyway to control a market is the only way to play. It always has been but now it is the only way. That greater fool dumb money retail crowd stopped coming to the casino (but most still left their wallet there with their 401ks)

steve from virginia's picture




First of all, the 'Tide of Liquidty' doesn't lift anything, because this 'liquidity' isn't real. Nothing real is lifted, the financiers are quite able to lift their own BS, they certainly are not helpless.


Unless that is the argument Caldwell is intending to make.


Finance cannot lift the real economy because it costs too much, the real economy is both a credit- and an energy dependency. Banks cannot lend crude oil so they don't try, best to lift the asset markets instead.


Face it, the real economy is bankrupt, it is capital deprived, we invented a clever capital destroying machine and turned it loose. Now we get to pay for it.





kaiserhoff's picture

Free money for the government and the bankers.  The rest of us are expected to actually repay loans.

That doesn't seem to be a model for getting any real work done.