The Fallacy of the Wall of Worry

February 26, 2024

So much for the wall of worry!  Optimists and visionaries supposedly climb it while ignoring troublesome signs that leave most investors on the sidelines, paralyzed with fear. Last week, as soaring shares of Nvidia tugged stocks higher around the world, speculators swarmed the wall like cockroaches gorging themselves on dried beer, glue and animal feces. Do insects ever pause to worry? More likely is that even the dark shadow of a size 14 shoe descending on their wretched banquet would not quiet the feverish din of a hundred thousand mandibles crunching away.

And so it is these days on Wall Street, scene of an epic wallow that is far removed not just from worry, but from reality. The so-called Magnificent Seven — we have always referred to these stocks, more appropriately, as the Lunatic Sector — all by themselves created more than a trillion dollars of ‘wealth’ in just the last week or so.  This occurred when stocks took volumeless leaps on earnings announcements whose details, whether bullish or bearish, were of scant concern. No one maintains any longer that this is rational behavior. But leave it to Wall Street’s peerless hype machine to tell us that earnings eventually will catch up to the craziness. Really?

Celebrate This!

The megastocks have gone vertical at a particularly unsettling time.  Commercial real estate is collapsing, government is doing most of the hiring, brutal price increases for nearly everything have crushed middle-class purchasing power; and borrowers, especially the U.S. Treasury, will need to refinance more than eight trillion of debt this year at significantly higher rates. To make matters worse, inflation is poised to take off again, in part because of higher costs incurred by shippers avoiding Houthi missiles in the Suez.

Under the circumstances, it is far more likely that the next move by the Fed will be to tighten, not loosen.  This should have caused investors to knock down stock prices by at least 10%-20%, especially since they began the year expecting the FOMC to ease credit seven (!) times. Wall Street, Europe and American businesses have been counting on it, but Powell has stood firm.

So how do we explain the hyper-bullish reaction to the most negative scenario an investor could have imagined just a few months ago?

Mass Psychosis

Let’s start by retiring the idiotic notion that stocks have been climbing a wall of worry. It could not be clearer that mass psychosis, currently at a civilizational apogee, is behind the bull rampage; that it is oblivious to economic data, no matter how grim; and that it is as clueless about the future as Wall Street’s shills. We’ll also need to ratchet down AI hubris, since, let’s face it, the technology has yet to elevate two widely used applications, Spellcheck and Autocorrect, to the level of imbecile, let alone produce a driverless car.  To be sure, AI’s mediocrity in every instance you or I may have encountered is no deterrent to its commercial success, since it has the potential to replace half the workforce. In practice, though, we’ll be stuck with massive unemployment and, even in the greediest precincts of Wall Street, the realization that jobless people don’t buy enough stuff to keep the economy afloat.

If Nvidia is perceived as having all the answers, as its $2 trillion valuation would appear to suggest, investors are not asking the right questions.


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