Yes, balloons are fun. Until they burst. If you are soaring high above the landscape and your balloon bursts, it is going to hurt. Thus it is with the American stock market. Back in the questionable days when Ben Bernanke ran the Fed, he brought interest rates down around zero percent. He did this to support his President's plan to restore jobs and rebuild the American economy. It did neither.
What it did was drive money out of the banks. Municipal bonds were in ill repute with more cities and towns bumping up against the reality of unfunded obligations. Bank interest was down around a quarter of a percent on savings. People with money want it to work for them. So, who you gonna call? Stockbrokers!
So you call your broker. Now where are you going to buy stock? The European markets? With Greece and Italy and Portugal and Spain? I think not. How about China? A market and a currency that is one hundred percent controlled by the Communist hierarchy? Not such a good idea.
Even though the American market has a few problems, it is really the only safe game in town. Money flooded in to the stock market and the averages swelled like a broken toe. That is what I call the Bernanke bubble. He created it. He will forever own it in my mind.
So the Fed has had this balloon on a string for seven years now. They would like to get rid of it, but they don't know how. The market is nervous. We have instability in all political arenas. Any bad news at all will cause a two hundred point drop. If Janet Yellan even thinks about an increase in the interest rate, beads of sweat appear on the foreheads of big investors.
One day, it must happen. They missed a chance with the situation in Greece. They could have snuck in a point or a point and a half in under the cover of Greece's problem. It probably wouldn't have made things any worse. I'm sure the smartest investors are prepared for it. They will profit, as they always do.
So balloons can be fun. But when you've had one tied to your bedpost for seven years, it starts to get old. You want to get rid of it but it is still floating. But if you have matured in those seven years, you know you have to do the adult thing.