Commentary Magazine


The Big Disconnect

Yesterday, Iran continued work on its first nuclear weapon, Moscow and Beijing conspired to undermine the Western democracies, and fanatics prepared their next attack on the United States. Oh, there was one other thing that happened—the Dow Jones Industrial Average crossed 14,000 for the first time. Although the index eventually ended up below that magic mark (at 13,971.55), yesterday’s was the fourth successive record close.

I think this is a form of irrational exuberance. Investors, traders, and speculators needed just 57 trading days to push the Dow from 13,000 to 14,000, and they required only 129 days to make the journey from 12,000 to 13,000. By way of contrast, it took about seven-and-a-half years for the market to climb from 11,000 to 12,000. Markets are efficient, but they still dive on the outbreak of wars, assassinations, and miscellaneous disasters. That said, today there is a huge disconnect between current events and market performance. What kind of a risk premium would accurately reflect the perilous state of geopolitics today? One restrictively high, I’d say. And the markets continue to soar. It isn’t pessimism to see a bad ending in this.