The Stock Market, Like Pavlov’s Dog

Today the stock market has rebounded somewhat after a few tough days, although that result could turn on a dime.

What caused the stock market to plummet the last few days?  Poor sales by large companies?  Weak economic data?  Lingering concerns about an unemployment rate that remains too high and millions of Americans giving up on job searches?

Nah.  It’s because earlier this week Ben Bernanke may have hinted that the Federal Reserve is going to tighten its prolonged loose money policy and may actually reduce the amounts of cash it has been pumping into the economy.  Of course, whether the Fed actually is going to change its policy isn’t entirely clear.

It’s sad, really.  We’ve gotten to the point where the Wall Street titans and stock market wizards have become so addicted to the manipulations wrought by the Fed’s monetary policy that the market simply responds, like Pavlov’s dog, to the Fed’s opaque pronouncements.  Ben Bernanke sounds a bell, and the market starts slobbering like Fido expecting a wet can of Alpo to splat into his food bowl.

This should be a concern for all of us, especially those of us who are trying to save for retirement.  The stock market, where so many people keep their money, has become a one-note opera.  The overriding focus is on what the Fed will do.  Actual economic performance, actual company performance, and other “fundamentals” that used to be reflected in stock prices now are overridden by the aggressive actions of the Fed.

It’s not a good thing when the stock market is so easily manipulated, and when companies become so dependent on easy money.  The fact that it is an arm of the federal government that is doing the manipulating doesn’t make it any better.

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