The story has it that Debbie Reynolds, expressing some adult supervision, told her daughter, Carrie Fisher, that she craved too much immediate gratification. “But immediate gratification takes too long!” Fisher replied.
I worry that a similar sentiment may have become the mindset of many who have experienced the quick 10 percent rise in market values since the election. Fueled by promises, some investors will feel that the next 10 percent boost will be taking too long.
To get real, a big part of the rise in value is attributable to a few major industries, starting with financial services. Since their recovery, which doubled stock prices in just the last five years, this group once again makes up close to 16 percent of the value of the stock market. So when stock prices in this sector rose by another 18 percent in just two months, it contributed more than 3 percent of the 10 percent overall rise.
In addition, this industry is simply giddy at the prospect of the repeal of Dodd-Frank, so in their minds, things can only get better. But that would mean the removal of the reserve requirements and the supervision designed to prevent a repeat of what was almost a total collapse of our entire banking system.
It serves to remind ourselves how close we were to financial armageddon at the time. As revealed to me by a key lawmaker actually present, I can tell you that there was an evening at the U.S. Capitol when the Troubled Asset Relief Program, scheduled to cost more than $700 billion, was dead. ATM machines were to stop functioning within a day or so. Treasury Secretary Henry Paulson had actually fainted and collapsed from stress (they couldn’t call a doctor because he was a Christian Scientist). Nancy Pelosi, House speaker at the time, talked Rep. Barney Frank into considering the bill one more time and succeeded in the 11th hour. Who wants us to be staring into that abyss again?
Some want to scrap the Consumer Financial Protection Bureau, as well. This means, for instance, that the up to 2 million Wells Fargo customers whose credit was adversely affected after unauthorized accounts were set up in their names will once again have no voice beyond listening to themselves talk to recorded lines — for as long as five years, in some reported cases. Without government help, it can be impossible to get financial institutions and credit bureaus to straighten out accounts reflecting dinged credit for non-payment of bogus service fees.
After watching Sen. Elizabeth Warren eviscerate then-Wells Fargo CEO John Stumpf in hearings held to review the wrongdoing at the bank, there is hopefully not a CEO in the country who hasn’t since made it a practice to personally review any ethics violation notifications in their organizations — offering rewards instead of terminations for the whistleblowers that bring them up. Let’s hope that lesson doesn’t get ignored.
In the place of these too-big-to-fail-or-control monoliths, well-run regional banks that deserve our business are the ones that will benefit going forward. Meanwhile, we don’t need to feel sorry for banks whose stock prices have more than doubled over the past five years.
Energy is another sector responsible for a disproportionate boost in market values over the past two months — contributing 1 percent of the total gain. The door is now wide open to expand the use of fossil fuels and do away with whatever stands in the way of pipelines, fracking, mountain-top stripping, and other environment or climate change concerns.
This carte blanche for the energy industry started when Ronald Reagan removed the solar heaters that Jimmy Carter had installed on the White House roof. It continued when Vice President Dick Cheney referred to alternative energy sources as being “naive.” And now the same mentality is back in full force. Watching us struggle, Germany is laughing all the way to the bank as renewable energy now generates 30 percent of that nation’s power. That could have been us by now.
The last few months have provided some instant gratification that could be nothing more than a “sugar high” given that the source of the rise comes from just a few industries and the excitement over deregulation. Overall, the economy shows every sign of continued growth for a sustained period, but the market will fluctuate thanks to the influence of a few outliers whose value hinges on political forces.