Some (who shall remain nameless, though they are famous 'round these parts) say the economy is turning around. Some others like to point at this summer's sucker rally in the stock market as supporting evidence. The fact is, stock market rallies took place throughout the Great Depression. Nothing that happens in the market has any bearing on economic reality, and speculative rallies actually have the net effect of destroying wealth.
CharlieHipHop's diary :: :: The stock market has been on a tear these past few months, and nobody seems to know why. Most of the economic news has been bad, although there has been a slowing of the rate of decline. Unemployment continues its epidemic growth. Not one single net job has been added in years now, and about 6 million jobs have been lost, "only" 247,000 of them last month (This counts as good news nowadays because the rate of job loss has slowed, you see. Never mind the fact that the economy needs to ADD 100,000 jobs every month just to keep up with population growth). Corporate profits have not been particularly impressive, and what little growth there has been in the past few months has been mostly attributable to cost cutting, not sales growth. Retail numbers have fallen through the basement floor and are boring their way straight to Hell (You know it's really bad when even Wal-Mart is taking a hit.). Twice as many banks have failed this year as last, and the FDIC, it turns out, is bankrupt so good luck getting your deposits back when your bank fails a few months from now.
Oh, but -- HEY! -- the market's rallying so everything's good in Suckerville.
There were a lot of little stock market rallies during the Great Depression. As a matter of fact, the period between July, 1932 and 1936 was one of the biggest periods of growth the Dow has ever experienced. (Did you know that?) Even so, the Depression persisted, people got hungry, lost jobs, lost homes by the millions -- sound familiar? So you see, the stock market really doesn't mean shit as an indicator of economic health.
This current rally is something like the period between Black Tuesday and March 1930: An impressive gain to be sure but really not anything to get too excited about. The trajectory will continue downward for some time after this ends, as it will any day now.
Let me tell you how these little rallies work during a time of severe economic contraction and how they end up adding to the misery. Here is the dynamic:
1.The market crashes.
2.People with cash swoop in and buy up bargains.
3.Other people follow them like lemmings.
4.The market rises.
5.The smart money gets out at or near the top.
6.The dumb money gets lost.
7.The net effect is less money in fewer hands
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http://www.dailykos.com/storyonly/2009/8/20/769925/-Sucker-Rally-to-End-Soon,-Economy-Still-Shit