It's time to come clean. For years I've been a secret student of the stock market. Not to be too arch about it, I'm an expert on market trends and psychology.
The latest surge, as they say, of the market is not surprising at all if you've been following the signals. Basically, here's what happened: the business community finally has come to have confidence in President Carter, with results all can see.
There are other factors. Among them: the money supply level, the actions of the institutional investors, the state of the dollar, the recent government report showing a decline in unemployment along with a revival of inflation since January, the pollen count, the sight of citizens cheerfully paying their income taxes thus assuring continued national stability leading to a better business climate.
But at the heart of the surge lies that simple thing called confidence.
Normally, I wouldn't write about this, preferring to stick to stimulating topics that everyone hungers to read. Like politics. But my friends, knowing of my expertise in this field, have been urging me not to hold back any longer. Here, then, is my informed analysis of the latest market behavior.
To understand the dynamics of the current surge you have to go back to your morning paper of a week ago. That was, youremember, one day after the president gave his long-awaited speech on inflation.
The Page One news - "Carter Vows Wider Fight on Inflation" - dominated the paper, but for real insights you had to turn to the financial section. There, buried away, was a small story offering the first clue into the making of the surge. It carried this headline:
"Well Street Prices Fall,
Ignoring Carter's Speech"
And the story said:
"The stock market lapsed into a mild decline yesterday, registering no emphatic verdict either way on President Carter's economic message . . . There was a more pronounced response in foreign exchange markets, where the dollar declined sharply amid what traders described as disappointment that the president hadn't proposed any strong anti-inflation measures."
I can now report that a secret meeting of bankers and brokers took place immediately after the president's speech. It wasn't like the famous session convened by J. P. Morgan during the Panic of 1907, or the similar meeting at the House of Morgan on Black Thursday in 1929. But decisions were made, forces set in motion.
In essence, the financial leaders liked what they had heard: the president calling for a lid on government salaries, while urging restraint on the part of business. The decision: a brief period of watchful waiting, as they like to say on Wall Street, and then action.
The next day brought momentarily disquieting news. Spread across Page One was the 6-column streamer headline: "Concern About Inflation Perils Carter's Tax Cut Plan."
And the immediate market reaction: "Dow Average Loses 3.89."
To the uninitiated, the news a day later seemed to indicate a further market depressant:
"The Carter administration is considering cutting back its $25 billion tax reduction proposal - probably by $5 billion or more - in part as a move against inflation."
Now you might think that was a blow to business confidence in this administration. Just the opposite. It was what business had been waiting to hear: a plan to fight fiercely against inflation - and cut taxes too. Irresistible. The big bull boomlet of '78 was on, and the rest is history.
From the news, as reported on Saturday, April 16: "Stock Market Rallies in Record Trading."
"Stock market analysts in New York and Washignton attributed yesterday's rally to a variety of factors, including new interest by foreign investors in stocks of American corporations.
By now, those factors should be perfectly clear: the foreign investors of Wednesday that had worried so much about the president's lack of strong anti-inflation measures, leading to a further weakening of the dollar, by Friday had gotten the real word from Wall Street that up was down and black was white.
That set the stage for Monday's historic performance when, as we reported, "Market Stages Another Explosive Advance."
The greatest volume ever - 52.3 million shares traded on Friday - was easily eclipsed by an even grander number, over 63 million, on Monday. Some analysts claimed to be perplexed by the lack of specific news developments to trigger the continuing phenomenal boom. They shouldn't have been. As we correctly reported, the factors were evident: "A strengthening dollar, improving investor psychology, and the herd instinct of institutional investors."
There were dissenters, as expected:
"Other analysts cautioned that the hurtling rally of the last few days could prove evanescent and the market may be extremely vulnerable if worries about inflation, interest rates, the foreign trade deficit and the lack of an energy policy which have been weighing on investors reassert themselves. "
But the words of such Cassandras were happily drowned out in the clamor to buy.
It comes as no surprise that the market yesterday went into a "broad retreat." Yet don't be misled by the analyses about profit-taking and technical adjustments as the causes.
I have it on the best authority that there's a deeper reason. The business community has lost confidence in President Carter. But if you're a student of market trends and pcychology you've already figured that out.