Good News Monkeys!
The DJIA just hit new cycle highs last night, closing near 14,036! Pretty awesome, right! Highest close since the fall of 2007! Do you monkeys have any idea why? Anyone? Bueller? Don't feel bad if you don't, neither does Goldman's S&T desk, who notes (somewhat hilariously):
A solid rally today and new cycle highs for US equities – but that’s where the story stops. No obvious catalyst. No bullish data. European stocks traded well, with most people pointing to a better German ZEW print, but it’s not clear why that would translate into such a strong US trading session. Maybe it’s best though not to look a gift-horse in the mouth.
Fun Fact: The reason you don't "look a gift-horse in the mouth" is because back in the day, while trading horses, you could tell the age of a horse by looking at it's mouth. An older horse's dental condition would be worse than that of a younger horse, an important fact when you're trying to avoid getting ripped off in the horse market (unless you're buying beef lasagne). So, when you're getting a free horse, you'd be acting like something of a jerk if you check to see if it's a high quality horse. I mean, come on, the horse is free, don't be that guy.
Now, back to the question at hand. Why are equity prices skyrocketing? Europe isn't doing so well, China doesn't appear to be anywhere near the double digit growth so many economists count on, and Japan's Shinzo Abe has requested that their elderly "hurry up and die." Not exactly what I'd call a recipe for global economic success. But, that doesn't mean I don't have a few ideas for what could be powering these new cycle highs for equities. Here's a few, in ascending order of likeliness:
- Europe is Better: Maybe Europe is better than we all thought. Perhaps Spain actually has a debt to GDP ratio of 85.3%, and that number is totally right and probably fine, as opposed to totally contrived nonsense trying to hide a far worse picture.
- The Current Season of The Bachelor is Driving Economic Growth: Week 7 of The Bachelor attracted nearly 400,000 more viewers than the previous season, which is clearly translating into stronger consumer spending in the US. Is this actually a very likely scenario? No, it's absurd, it's just more likely than Europe being healthier.
- Massive, Coordinated Central Bank Intervention in Developed Economies: As we're all familiar, the Federal Reserve, the BOJ, the BOE, the PBOC, and the ECB have all been engaged in sterilized and (recently) unsterilized market actions. Since the money, as you all know, has to go somewhere, why not equities?
What do you monkeys think? Do any of you ascribe to any of these totally well thought out theories? Or are some of you of the mistaken, and ridiculous impression that American Idol is driving global growth? I mean, come on, that's just crazy.
Well, it snowed yesterday, and the market usually rises on those days, therefore the snow caused a rally.
Brilliant sir! I think we both know that the new hot trade is going to be a weather future coupled with an emini. I'm going to be a billionaire!
rain=bad sun=good snow=great hurricanes=muy mal tornadoes=what tornadoes? earthquakes=short the techs tsunami=buy rice futures meteors=short Russian intelligence
nice analysis guys!
Love the cap pic. I like the analysis, but I feel like we are in for a correction.
That being said, I've felt that way for a long time so I've been on the sidelines watching other people in long positions making money -- I just try to remember that the turtle wins the race.
The market has to go SOMEWHERE and there was no negative news
Some theories (not necessarily true) 1. Central banks. People must still believe that the central banks in Europe / US / Japan will continue to buy up assets to inflate capital market prices. 2. Return fatigue. Since a lot of folks have been playing safe with their portfolio with mostly fixed-income assets, bonds are probably overvalued and not yielding enough. People are branching out into stocks a little bit more to get some exposure to the market, but aren't necessarily rotating out of bonds yet.
I'm just spitballing here, and I don't pretend to be an expert. But honestly, in my humble opinion, none of the recent rally is based on improvements in the real economy. Chris Cole from Artemis Capital had this piece a while ago that talked about "reflexivity" in the financial markets; it's a good read if you want a more contrarian view of what's going on in the markets these days. I can't post it since I haven't been on WSO long enough, but it's called "Volatility of an Impossible Object: Risk, Fear, and Safety in Games of Perception."
bernanke told us he was keeping rates low till 2014 2015? it'd be real douchey of him to go back on that promise.. central banks are increasing inflation expectations... asset managers are all on the same page they need returns to keep clients happy, so they are not getting in one another's way... It is just not practical for all investors to collectively sit on the sidelines and have their money do nothing until stimulus runs out
they're arent enough bears to 1. take on this bull market in the short run (2-3 more years?) 2. opportunity cost in the short run is continuously increasing
Great Rotation. Lack of negative catalysts. Better question, what will be the first data point to snap the markets back to reality? Possibly FOMC Minutes?
if the fed pulls the plug on any qe and goes back on their initial promise to keep rates low through 2014 that would be difficult headwinds for the stock market to take on.. it is hard to imagine the fed doing this and risking losing the confidence and trust of market participants..
Low interest rate environment + large number of stocks on depressed level = a slew of leverage buyouts
Who cares about the Dow anymore? S&P 500 my friend.
Nice plug Andy
It's the same thing with the S&P, I just happened to be looking at the DJIA when I was writing the post.
Classic!
Step 1: Buy stocks Step 2: ????? Step 3: Profit!
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