Market Commentary for the week of March 24, 2008

There is room for cordial disagreement about the impact of global Central Bank’s capital infusion into the marketplace and, more specifically, the rescue of Bear Stearns by one of its competitors and the Federal Reserve. Ben Bernanke likes low interest rates. But consider yourself in the minority if you believe that those monies did anything but postpone the inevitable disposition of the financial sector, the stock market, or the negative fundamentals which underpin the U.S. and global economy.

Indeed, it is ignorant to conjoin the activity of the equities market to any similar evaluation about the condition of the economy, fiscally or psychologically.

After one of the most emboldened acts executed by the Federal Reserve in years, to bail out an incompetent management hierarchy at a prestigious investment bank, the markets on Tuesday jumped for joy over the infusion of “cheap” money, then came crashing back to reality on day-two after realizing that the fundamentals are simply not there to support euphoria about earnings potential in a highly inflationary and volatile economy.

As if in concert with that thought, commodities prices (on a nearly linear and unsustainable upside swing) lost valuation and momentum, too, lending further credence to this sobering plot which is unfolding.

Bad diagnosis; bad cure.

Combine fiscal irresponsibility along with imprudent monetary policy and you brew a recipe of suspicion and fear. No amount of “pump-priming” can assuage consumer despondency that their government doesn’t care about the right moral solutions, only the most expedient financial ones. No matter how cheap the acquisition price, those several hundred millions of dollars of bailout money might have defrayed medical expenses, rising energy costs, tuition credits, bridge-building or deficit spending.

It’s not the reality about whether the deal makes sense, but, rather, the perception that money exchanges hands at an upper echelon of white collar business, but never touches the lives of real people who reside below the hierarchy. Even with the rescue, thousands of workers lost their pension and hope for the future because their management committees weren’t honest with them about their firm’s fiscal solvency.

It seems as if earnings and profits are being squeezed by higher costs or lower unit volume growth. In some cases we are seeing the next wave of mergers and acquisitions of depressed companies by larger sharks. There is enough money to finance these distressed buyouts. We are not in the middle of a global credit crisis as some might suggest, but, rather, a global morality crisis in which greedy corporations leverage themselves beyond their ability to pay. If leaders would lead rather than trying to dupe the public, they could mobilize capital to solve problems which ultimately would be remunerative to the bottom line.

Who cares about Main Street?

CEO’s who command failing corporations or who steward impolitic mission statements need to be held accountable for their poor governance. While write-downs and losses are part of the standard operating procedure for hedge funds, banks and brokerages that take unnecessary gambles with your money, you and I are not as “privileged” to walk away from inaccurate accounting or poor investments. Households go “bankrupt”, corporations “write it off”.

The solution is not to manipulate the ebb and flow of the capital markets but to rejoice in its efficient processing over time. As painful as it might be, it serves no interest to delay or interrupt the normal cyclical flow of economic and market destiny. You don’t agree? Try to jiggle money loose from a disbelieving public right now.

There is a true, quantifiable quotient that connects human emotion to the capital markets.

While a stimulus check might be nice, a hug and some reassurance might be nicer.