Consumers spent more, not less -- they just did it in different ways, mostly online. Commercial construction, the biggest potential employer, began to come back as credit loosened. Pent-up demand held up the housing and auto markets and continues to do so.
The key question as we go into the new year is how such a series of obviously negative events could amount to positives for the economy and the stock market. The answer is that the numerous market naysayers forgot some basic laws of supply and demand.
First, demand finally caught up with the supply of pretty much everything: housing and its accoutrements; autos and related products; hard goods like computers and cellphones and even desktops and laptops; and commercial buildings, which, astonishingly, had simply stopped being built in most areas of the economy. People sometimes forget that, like it or not, we are a growth economy, even if you think that there would be little growth without the Fed -- something that I believe will prove demonstrably false in the coming years.
Most important, demand caught up with the supply of stocks, as many companies used the downturn to buy up shares, causing a shortage of quality equities. Meanwhile, other companies managed to acquire or split their way into growth. Almost every single acquisition brought stock advances of major magnitude. There simply aren't enough stocks being created, despite a huge number of initial public offerings. And demand for high-quality equities, Internet names, social and mobile positives that included cloud-based companies, and companies that gave decent dividends was simply voracious.Plus, the demand that the Fed did create with low rates was distrusted or derided by ideologues who hijacked the economic discourse by proclaiming that it was all one big bubble. Anyone with an elemental knowledge of politics and history knows that ideologues are never wrong, and they will repeat their strident jeremiads to investors who they confuse and obfuscate with impunity while keeping one foot out the door and in CDs. I despise them for keeping you from making money. We could go back and see who was wrong and who believed that things had to collapse, with the notable exception of Nouriel Roubini and Meredith Whitney, the Bob Prechter and Elaine Garzarelli of this generation. They could never get bullish given how they made their names being stupendously bearish at the right time and then refused to declare victory and switch directions. All the naysayers will be forgiven, because no one ever calls out bearish guesses for fear they might be right tomorrow. We could castigate those who fooled us into thinking that we had to be in risk-on or risk-off modes at all times, a term I never understood to do anything but turn a nation into poorly timed renters instead of well-endowed investors. But they will get a free pass, because that's the nature of this game. Notice, thank heavens, no one uses those risk-on/risk-off terms anymore, something I feel most proud of because they all knew I was gunning for them, and I am relentless when I think that someone's confusing investors for no reason whatsoever other than trying to sound knowledgeable and cool.
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