Guest Post: Bread, Circuses, Cake And Markets
From Peter Tchir of TF Market Advisors
Bread, Circuses, Cake and Markets
The decline of the Roman Empire is captured by the simple concept of bread and circuses. Rather than focusing on the issues, the leaders tried to placate the masses. The disdain in the simple phrase 'let them eat cake' so clearly brings to mind all the reasons for the French revolution. Rather than placating the masses, the aristocracy almost took pleasure in flaunting their wealth and privilege. I am not convinced America has reached it's apex and is in decline, but more and more I believe that if we have peaked history will equate our decline with two simple words - "the market".
The stock market has always been part of American society and became even more prominent with the Internet boom, but never did it seem to dominate government the way it does now. The Fed Chairman brags that the rally in the Russell 2000 justifies his policies. Roman's receiving tribute rode a chariot with a slave whispering in their ear "you are mortal". Ben testifies before congress with the rally monkey sitting on his shoulders. (I couldn't find the rally monkey link). If it was only the fed and treasury that worried about the daily gyrations of the market, that would be one thing, but it has become pervasive at every level of politics.
Politicians brought up the need to solve the debt ceiling issue 'before the markets open is Asia" Boehner scheduled his press conference for "after the market closed". These are just a couple of recent examples but without a doubt trying to please the market has become the national pastime for politicians and the only box score they care about. The market is not the economy. Pandering to the markets does not help or fix the economy in the long run.
Ironically, fixing the economy would lead to long term gains for stocks. Maybe politicians should schedule their announcements for when it is convenient for soldiers in Iraq to watch, or at times that senior citizens find convenient. Those of us in the markets know how addicting the instant results of the market are. There is no waiting. The gratification is instant. That is a good way to run a portfolio, it is not a good way to run a country.
Since the government seems to be trying to cater to wall street, how come it has had such mediocre results? Why do record bailouts typically lead to more bailouts? Why didn't QE fix the economy? Why can't politicians bend the economy to their will? Because in the economy not everyone has the same vote. Whether it is war or healthcare or any other big issue, the politicians have a standard game plan. It generally works because very few people have much power. There may be some well respected or popular people in favor but the other side can usually find people to counter them. You get Springsteen and I get Eastwood. Head of mayo clinic says one thing, head of Harvard says another. In the end one set of politicians wins and their policy takes shape over time.
The problem with the markets is that some people have much more voting power. People vote with their money so it isn't about the number of people behind your policy, it is the amount of money. Actually it is even more difficult than that because money changes direction faster than anything else. People who want unions tend to want unions all their life. Traders who buy stocks may sell tomorrow. If we don't want out epitaph to be "we the people, for the markets" we should get back to addressing the economy and making tough decisions and letting the market take care of itself. I would rather fight through adversity to come out on top with a sense of accomplishment, rather than collect a bunch of participation awards and wonder where it all went wrong.
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