Ladies and Gentlemen, We Are Trading On The Moon

Courtesy of Joshua M Brown, The Reformed Broker

Moon Trading

Objects on the surface of the Moon experience only 16.5% of the gravity they would experience on Earth. In this way, a 200 pound man bounds up and down off the Moon’s surface with the buoyancy of a 33 pound child.

Ladies and Gentlemen, we are trading on the Moon.

– Joshua M Brown 1/11/2010

And for those who are mostly long (or completely long or long and leveraged), it feels pretty damn good.

There are signposts along the road reminding us all that this market could turn down sharply at the drop of a hat. These signs come in the form of pent-up home inventories, still-savage unemployment stats and the ever-worsening condition of the commercial real estate swamp and those institutions who lend into it.

Some investors are compartmentalizing these warning signs and jumping into the stock game so as not to be left behind. They do this with one eye on the exit and a quiver on their backs filled with put contracts and sell stop limit orders.

Many more, however, are beginning to ignore these warnings altogether, like a well-traveled airline passenger ignores the safety procedure demo at the beginning of a flight.

This willful ignorance is occurring for the simple reason that we’ve been in an anti-gravity environment – where stocks bounce off of each piece of good news and bad news indiscriminately, each bounce propelling them higher still.

Here are some features of the recent anti-gravity stock market:

Bad employment number – stocks go up
Good employment number – stocks go up
Sovereign credit default – stocks go up
Sovereign credit downgraded to junk – stocks go up
Hawkish Fed speech – stocks go up
Dovish Fed speech – stocks go up
Hawkish Fed minutes released – stocks go up
Dovish Fed minutes – stocks go up
Treasury auction goes well – stocks go up
Treasury auction goes poorly – stocks go up
Crude oil and other raw costs rally – stocks go up
Crude oil and other raw costs sell off – stocks go up
Banks report earnings – stocks go up
Banks dilute their shareholders back to the bronze age – stocks go up
CES preview captures our imaginations – stocks go up
CES becomes a joke with 3D TV and a $2300 battery-powered bike – stocks go up
The weather is unseasonably warm in November – stocks go up
The weather is Antarctic across the country, Black Friday is snowed out – stocks go up
Stimulus plan is roundly criticized as wasteful and irresponsible – stocks go up
Talk of a yet another stimulus plan begins – stocks go up