Although the stock market is unlikely to grind to a complete halt, it seems to be experiencing what could be called nervous paralysis. Yesterday, for instance, achieving a modest rally target at 1316.75 that we’ve been using for the E-Mini S&P should have been a piece of cake. In fact, buyers were unable to push the futures above 1302.50 before retreating into the close.  This tedious undulation has repeated itself perhaps a dozen times since Christmas, and although stocks have trended timidly higher over that period, the total gain has amounted to no more than about 220 points for the Dow Industrials.

Because there is evidently not much conviction among bulls, let alone a good reason to be bullish; and because bears have yet to recover from the trauma of the Dow’s 260-point short-squeeze on January 3, stocks have drifted nervously higher, unable to correct for reasons explained here yesterday. Those reasons mainly concerned the gusher of funny money that the central banks have channeled into the financial system. This is inflation, pure and simple, and although it provides a plausible rationale for buying stocks, we have our doubts that the stock market will ultimately prove to be the best investment vehicle for discounting inflation. Why?  Simply because inflation could play out as an instantaneously ruinous hyperinflation before subsiding just as quickly into a deflation far more destructive than the one we are now experiencing.

Waiting for News

In the meantime, it seems clear that the mountebanks who maneuver the markets up and down from one day to the next are waiting for the kind of news that will ease their task. Stories concerning Europe’s slow-motion collapse have been temporarily pushed beneath-the-fold by Europe’s seaborne disaster off Italy, but they are certain to re-emerge with a vengeance, and soon. It is of course possible that the dollar/euro swap arrangement that currently obtains will succeed in suppressing sovereign borrowing rates for longer than most of us might imagine. This mechanism of borrowing is about as brazen a fraud as has been perpetrated by the central banks since they began the era of “bailouts” a few years ago. Although no one actually believes the bankers’ hokum will save the day for Europe (or the U.S., for that matter), the status quo continues to hold — probably because, for most of us, what is all but certain to come next is too scary to think about.