Bear Rally Recalls Ballerina’s Fatal Dance

By Rick Ackerman, GoldSeek

We’ve got a nickname for the bear rally begun last March on Wall Street:  the “Red Shoes Market”. The metaphor alludes to the classic 1948 British film based on Hans Christian Andersen’s dark fairy tale. Every cinema buff knows the story of the ballerina, played by Moira Shearer, who couldn’t stop dancing after she put on a pair of enchanted crimson ballet slippers. Eventually she danced herself to death. That’s exactly what we foresee for the stock market once the mad energy that has powered the rally has been spent. That this will occur is all but certain, since the economy, green shoots and phony recovery statistics aside, is edging toward Depression.

Like the ballerina, frenzied investors have no control over their actions. Even though many portfolio managers evidently believe it will all end badly, they cannot move to the sidelines for a breather while stocks continue to move relentlessly higher, as they have been for the last eight months. Shares have soared mainly because of the government’s innumerable bailout programs. The giveaways have produced a glut of liquidity in the financial sector that has nowhere to go but into stocks and bonds. Business loans are shrinking because both borrowers and lenders alike are skittish about taking on more debt as the economy has continued to weaken. The result is that lendable reserves have found their way into the securities markets, pushing valuations to historical extremes.

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