Rumors Drive the Market Upward Again

As I have written before, any news rumor is good news for the market; the aftershock of disappointment is likely to be much more pronounced. From a Dow Jones Newsire report published online at 5:17pm today:

On Tuesday, the market received a jolt higher in the final hour of trading after the Guardian newspaper reported France and Germany agreed to increase the size of Europe’s rescue package to more than EUR2 trillion ($2.7 trillion). The Dow rose as high as 255.74 points on an intraday basis.

But the report was almost immediately contradicted by Dow Jones Newswires, which reported European officials are still debating the size of the euro zone’s bailout fund, according to an official familiar with the negotiations. The notion that an agreement has been reached to leverage the fund to EUR2 trillion is “totally wrong,” the official said.

“It seems events out of the euro zone trump everything else of late,” said Ted Weisberg, president at Seaport Securities. “If the message out of Europe remains upbeat, it will be a positive for the market.”

“…Market participants are feeling much better about the clarity in Europe, at least in the short term,” said Brad Thompson, chief investment officer at Stadion Money Management. “But it’s way too early to say that we’re out of the woods. There are still a lot of issues that need to be resolved.”

That is maybe the understatement of the century. Thomson is referring to “issues” such as the intractable, decades-long culture of feeding at the public trough that several large European nations will somehow have to resolve…almost overnight. Once that is settled, then everything is going to be just fine. The EU can start by, say, telling 50-year old greek retirees that they have to go back to work–this time in the private sector–AND they have to pay taxes this time.

Remember a few weeks ago when rumors flew that China was going to come to the rescue and buy Italian debt. Most had a good belly laugh at that one, but not Mr. Market, who promptly bought significant amounts of the S&P and other large indexes. When the rumor turned out to be false, the market remained at its higher level. Several other rumors have come out and jolted the market higher and when most of the rumors turned out to be false or inconsequential, the market did not sink back to its lower level. Do you get the feeling that this activity is like the potential energy along a fault line that is just waiting to be released?

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