Kass: Market Loses Its Mojo

This blog post originally appeared on RealMoney Silver on Feb. 2 at 7:57 a.m. EST.

People are getting the mood of the age in their inboxes. How many emails have you received the past few months from acquaintances telling you in brisk words meant to communicate optimism and forestall pity that "it's been a great ride," but they're "moving on" to "explore new opportunities"? And there's a broad feeling one detects, a kind of psychic sense, some sort of knowledge in the collective unconscious, that we lived through magic times the past half-century, and now the nonmagic time has begun, and it won't be over next summer. That's not the way it will work. It will last a while.

-- Peggy Noonan, "Look at the Time," The Wall Street Journal editorial (Jan. 30, 2009)

The terra is no longer firma. We have likely entered The Great "Decession," something worse than a garden variety recession but better than The Great Depression.

As Peggy Noonan described in her WSJ editorial on Friday, it's as if we have moved from a magical period over the last 50 years into this not-so-magical place.

Though their ranks are thinning, Polyannas and perma-bulls who, despite growing odds, continue to expect a midyear economic recovery should leave their rose-colored glasses in a drawer. Consumer debt loads remain too elevated, the momentum of job losses and business and consumer confidence are difficult to stem, household net worths have taken a whack (which will be difficult to offset in a period of lower real wages), and our financial institutions will remain risk-averse for some time (even after a "bad bank" rescue package). Given the general lack of visibility, any calculation of corporate profit growth for 2009-2010, one of the important foundations of valuation, remains soft and uncertain.

So, it should not be surprising that a thaw in the credit markets, a rapid fall in energy (and other commodities) prices, a massive stimulus package, a "shock and awe" monetary policy (and lower mortgage rates), the promise of a program aimed at ring-fencing bad bank assets and a patchwork attempt to shore up bank capital in order to unclog the transmission of credit have all failed to inspire investors and have also failed to stabilize domestic economic activity.

Unbridled and poorly regulated free market capitalism has failed or, at best, has stumbled badly; our domestic economy and the U.S. stock market reflect that failure.