The problem with stock market bubbles is that you always have to watch out for sharp objects — like Russian sabers.
As you’ve probably been reading — since you can’t avoid it — Russia’s President Vladimir Putin decided over the weekend to show some military might. He moved troops into the Crimean region after rebels who are allegedly more aligned with the West recently took control of the Ukraine.
Putin, obviously, isn’t happy with that, and he’s been rattling his country’s sabers by moving Russian military into position to possibly change things back to the way they had been.
Meanwhile, President Obama — as it was described in Monday’s New York Times — was “working the phones.”
Military might versus telephonic cajoling from the other side of the world! We’ll see how that works out n the days ahead.
I’ll leave the wisdom of what Russia and the US are doing to those who write about politics and others who know the difference between a spear and asparagus.
But as I was telling someone over dinner on Sunday, few people in this country are going to care about the Ukraine until the stock market starts to react. Then they will care! Very much.
On Monday, Wall Street took notice. The Dow Jones industrial average was down 250 points at one point during the day. It finished with a loss of “just” 154 points and closed at 16,168.03. Other market indices were similarly pummeled.
The curious thing is that Wall Street didn’t react to Putin’s moves sooner. The threat of Russian military action has been around since late February — or at least since the good will that surrounded the Sochi Olympics faded with the last triple Lutz.
Remember, the stock market rose sharply again last Friday, even as tensions in Ukraine were building. And Wall Street’s gains also came despite the fact that the Commerce Department had to sharply revise its fourth-quarter gross domestic product figures downward.
A good part of the reason for last Friday’s rally was very mundane. It was the last day of February, and money managers always want to impress their clients with good gains at the end of a marking period.
In fact, much of February’s 950-point jump in the Dow was pretty pedestrian. The market had dropped lots in January, and money managers did all they could to keep Wall Street’s performance from stumbling for a second month.
So they continued to manipulate stock prices higher — it’s not that hard if you have enough cash and people like Putin behave themselves.
After a five-year bull market, the pros in the financial community are pretty cocky. You get that way when there’s an overriding belief that the Federal Reserve — which is godlike to those on Wall Street — will always come to the rescue.
So what’s next? Let’s say the stock market bubble is in danger of being popped by the Russian situation.
There are currently none of the usual technical reasons for Wall Street’s big firms to rescue equities: It’s not close enough to the end of the month to “window dress,” as they euphemistically call manipulation on Wall Street.
And it’s not the end of the calendar quarter, when Wall Street spruces up its portfolio so much you’d think it was the Oscars. And it isn’t even one of those options-expiration periods in which the pros buy Standard & Poor’s 500 futures contracts willy-nilly for fun and profit.
Worse, there’s an employment report due this Friday that could add to investor nervousness.
Nope, there’s nothing to save the market right now, except …
Except … the Fed.
In fact, my bet is that Federal Reserve officials won’t wait too long before implying that they may taper the tapering. In English, I mean Janet Yellen and her cronies will soon hint that quantitative easing may survive longer than they had planned.
The Fed created this stock-market bubble through the excessive liquidity of its QE program. So it has always felt obliged to soothe Wall Street tantrums.
Is this a good thing? Yes and no. Stock prices should be going up only when corporate earnings and revenues are improving, not because the Fed is well versed in market manipulation. Revenue growth has been disappointing these past few years, and earnings gains have only come through cost cutting.
Now let me circle back to one of my original thoughts: Obama working the phones.
In better economic times, America might have been making military threats to stop Russia’s actions against the Ukraine. In a more prosperous era, an extra US battleship might have already been moved to that region of the world and a couple of fighter jets would have been sent swiftly to NATO bases.
At the very least, Washington would have bellowed more and idly threatened.
But just last week, Defense Secretary Chuck Hagel announced plans to cut back on the number of people in the military. And with the country’s current financial situation being as bleak as it is, the likelihood of us counteracting Russian belligerence threat-for-threat is lower. In fact, how emboldened was Putin by the idea that America has lost its ability to fight?
Maybe you are happy about the de-escalation of rhetoric, maybe not. All I’m saying is that things have changed.