What did Wednesday’s 500-point rally mean?  Event the bears can’t ignore the largest gain in 15 years - some discussion is warranted.  Was it the bottom of a long decline, was it a reflex action, did it mean anything at all?  One of my favorite writers, Caroline Baum of Bloomberg put it this way:  “a) the two houses of Congress agreed on a bill to overhaul existing securities and accounting laws; b) the sight of Adelphia Communications' John Rigas and his two sons being led away in handcuffs reassured investors the government is getting tough on white-collar crime; c) sellers took the day off; d) after a month of losses making July 2002 resemble October 1929, even the deadest cat can bounce; e) all of the above; f) none of the above.” 

Think back to March of 2000 and you might recall those strong the public statements that were bandied about by the government’s Microsoft trustbusters.  Their tone of retribution was the impetus, in the opinion of many, that launched the first phase of the ‘great bear market of 2000 to 200?.’  The question that keeps me awake at night is this; could the bear be prolonged indefinitely as our congress and administration posture to ‘reform’ securities laws, and in so doing, drive away investors and CEOs who fear that the new regulations will be too restrictive to promote effective capital formation or excessive penalties?  It is plausible that the markets are not so worried that every company is crooked as they are that Washington will overreach in addressing a problem that is not as widespread the big-government proponents would have us believe. 

The last few weeks have been among the darkest we have suffered through this prolonged bear market.  The environment grows more to this bear’s liking every day.  But, as long-term investors trying to survive this lengthy storm, we must stay focused on what is real and try to ignore the emotional winds that threaten our better judgment.  As far as we know to date, only a handful of self-centered individuals from Enron, ImClone, Anderson, WorldCom, and others created this morass.  Others such as analysts, economists, Senators and Representatives, and the media continue to press its ill effects on the market.  In fact, those who seek political gain from this mess may make this fall’s congressional race the most expensive in history as the market loses billions while investors’ lose confidence in their leadership.

As a thermometer, the stock market notifies us of serious problems in our world.  It provides an up-to-the-moment measure of the sum of all investors’ views of the financial world’s present condition as well as its near-term future prospects.  But, the market is no more to blame for our woes than the thermometer is to blame for the fever.  The market has told us for some time that our illnesses go deeper than a hangover after the ‘party’ of the late nineties.  Indeed, we have discovered serious diseases in our world and our capitalistic institutions that require attention.