Dan's Papers - October 30, 2009

It's kind of amazing how quickly you can change the mood of most people in the Hamptons. All you need to do is talk about the stock market.

Nearly everybody lost money in the stock market during 2009, but the worst of it happened around this time last year. I was so depressed, especially around Christmas. Nothing was good. Anybody I ran into was depressed, no matter how much good news they had in their lives. Even if they'd just won a new car, gotten married, had a kid, bought a house-it didn't matter, they were miserable. We'd talk about the losses and how, if we had any brains, we'd be buying back into the market because if we didn't, when the recovery came, we'd be kicking ourselves.

Well, since that low time (I think it started around March or early April), the stock market has been climbing, steadily, triumphantly and in some cases without any reason. It seems that all investors are trying to out think everything-including companies with tremendous debt/losses that should've been out of business. But the government printed more money, and the stock went up in price. And little by little, just about everybody I know bought back in. Nothing major, but enough to pay attention.

Well here we are, six months into this climb, and everyone's attitude is changing. I'm talking everyone, even people who have no idea what the hell the Dow Jones Industrial average is. I've been to parties where a circle forms and people talk about their latest victory in the stock market-many times these are the same people who lost most of their 401ks in the crash. "I just made 30% on Goldman, baby! Man, am I happy." And we all celebrate our genius.

It's this quality of human nature that makes me believe that we are headed in the right direction toward a sustainable recovery. We all easily forget our anger and frustration and eventually, we can't resist getting back into the game. Just look around. Everybody wants to give it a second chance. Slowly but surely, we forgive, forget and call our broker.

It's like any relationship. For months, even years, spouses and couples can hate each other, but then one little thing happens, like a gift of flowers, and it's hunky-dory again. The Dow Jones just gave investors a bouquet of 10,000 flowers. She delivered it at work, crying, apologizing. "Regulate me," she said. "Just give me another chance. I swear I can make this work."

"I don't know, Dow. I don't know if I can do this again."

"Please. I'll do anything. I'll take money from Obama. I'll cap CEO pay. I won't even think about bundling mortgages. I swear to God. I won't even think about it."

"I'll give you this one last chance Dow. But so help me, if you do this again, IT'S OVER!"

We've said this to Dow before, and we'll say it again, but for now, we're working it out.

The illusion of being geniuses for making money in a six-month rally fascinates me. Even I stumbled into it. The stock market is just so sexy when it's going up. A graph of the Dow for the last six months looks like the perfect leg leading up to a black dress. We romance ourselves with clever words like p/e ratio, points, strikes, executions...it's all so delicious.

But I'm watching this cheating Dow with a very close eye. I'm checking its text messages, its e-mail. I don't care how seductive she can be, because I know how cruel she can be too. Do the nay-sayers have it right? Is this all just a bunch of company fat that's been cut, making the profits look better while the revenues continue to decline? Or is this a genuine restructure with sustainable growth? Is this the time to bite?

Time will tell, and this flirty soap opera with Dow will continue, just like it always does.