The buy-the-dip crowd went on a rampage last Thursday, lifting the Dow by 300 points in the first hour of trading. So doing, it got the stock averages back into the green for 2015 – -thereby making short shrift of another 4-5% ‘dip’ at the turn of the year.
But don’t think we are off to the races once again. This year may be different, finally
Indeed, this time the Wall Street touts have got the narrative so dead wrong that the day-traders and robo machines who track them are likely to be smacked-down on the dips over and over – – until there are no more dips left, only an honest-to-goodness plunge.
The false narrative is an old standby that is usually revived when worrisome clouds form on the global horizon. Namely, that the US economy has ‘decoupled’ from the troubles brewing abroad; and that this time the collapse of crude oil amounts to a giant ‘tax cut’ that will send US consumers into a frenzy of new spending, thereby fueling a surge of hiring, income and growth.
Nice theory – but it’s not going to happen. In the first place, the plunge in oil prices is not a ‘tax cut’ and its doesn’t put a dime into the pockets of any consumer. That whole notion is just one more example of ritual incantation – – a baseless repetitive refrain that flows from Keynesian doctrine and Wall Street bullhorns.
What will happen is that total ‘spending’ in the US economy will be reallocated, not increased. And now that net petroleum imports have dropped to a 40 year low, the math is pretty straight forward; and its not indicative of a windfall boon to the domestic economy, at all.
This post was published at David Stockmans Contra Corner by David Stockman ‘ January 12, 2015.
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