Barron’s: One of Those Aberrational Stock Markets

Barron’s Alan Abelson notes what the Bears have observed and the Bulls take for granted: Bad news is good; Good news is good; In fact, its all good:

"WE’RE IN THE MIDST of one of those aberrational stock markets that treats everything that happens as bullish.

Good news, such as the revised employment data, is bullish because it signals a strong economy and more of the sparkling corporate earnings we’ve seen these past few years. Bad news, like the weakness in retail sales, is bullish because it will keep the Federal Reserve from lifting interest rates. It’s like being in a bar with a perpetual happy hour.

With their minds and sensibilities numbed to everything but the lure of capital gains, investors are impervious to the various and sundry calamities and eruptions wracking this old planet. The prospect that bloody Iraq may split into three even more bloody parts doesn’t rate a passing thought. News of North Korea’s nuclear bomb test had as much impact on the collective investment psyche as an autumn leaf settling ever so gently down to earth. Even the growing likelihood that the Democrats will take control of one, conceivably even both, houses of Congress and be in excellent position to commit all manner of mischief, evokes, at most, a so-what from the average man in the Street.

Mind you, we’re not complaining, but simply marveling at such admirable insouciance. And, who knows? Perhaps this cool philosophical attitude, a kind of postmodern stoicism, has something to be said for it. After all, bad things are always going on somewhere in the world — and the world, last time we checked, was still here. The most anyone ever gets pulling his hair out worrying about the way the world is spinning is bald."

Well said (of which, the modern equivalent is "True dat").


Parvenu Predators
Barron’s October 16, 2006

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. vhehn commented on Oct 14

    whats a bear to do when the market disagrees with you? why you dig in your heels and try to cherry pick evidence to support your bias.
    the market is the final judge. respect it.

  2. Barry Ritholtz commented on Oct 14

    Good advice.

    Except I heard the same thing in January 2000 and October 2002.

    The market is right, except when its wrong.

  3. douglass Truth commented on Oct 14

    I think a little Democratic mischief would be a refreshing change of pace, right about now. Mischief sounds better than “train wreck.”

  4. Leisa commented on Oct 14

    I’m disappointed (I find it odd) that Abelson lumps the Democrats potentially taking over both houses of congress into a paragraph highlighting other more potent threats. If some of the mischief that they conjure up results in strengthening our position both politically and economically (nationally as well as internationally), then I’d welcome it. Certainly we’ve experienced quite a bit of mischief at the hands of the current party, so I would not underestimate either party’s propensity to deliver in the Mischief Department.

  5. bushsux commented on Oct 14

    Barry-be careful calling tops. I agree with your analysis of the economic data almost completely BUT Mr. Market, unlike Mr. Bernake, is not data driven. There must have been too many hedge funds short the market going into September and the rotation out of commodities surprised a lot of them. Of course, I don’t know that and I am guessing, but aren’t we all. Right or wrong, the goal is to make money, correct? In fact, I don’t care if the market is right or wrong as long as I am on the correct side of it. Has a downtrend started yet? I don’t see it. But I am getting ready for one. How come no one cares that we are still in October, the month of crashes??? We are not out of the woods and rolling toward Christmas yet by my calendar. Once all the shorts are flat, the buying will be done. That is my unproven and absurd personal theory anyway. I don’t think anyone can keep this market up until the elections, conspiracy or not. ciao.

  6. ken commented on Oct 14

    One of the essential lessons for investors is this:

    – If your stock rallies on good news, buy.

    – If your stock rallies on bad news, buy.

    – If your stock falls on good news, sell.

    – If your stock falls on bad news, sell.

    There is nothing irrational about this. Judgements about what is good news or bad news are, for the most part, subjective and circumstantially dependent.

    What the pundits decry as bad news for a stock may be irrelevant to what the market thinks the value of that particular stock should be.

    On the situations in Iraq, Korea and elsewhere that Abelson alludes to, it looks to me that the markets are discounting a Democratic win and a return of reality based policy making to Washington. On this I think the markets may be a little too enthusiastic about the anticipated Democratic victory as any policy changes they can make would still be subject to the presidents veto. Once this reality sinks in I would expect a selloff, either just before the election or soon after.

  7. Barry Ritholtz commented on Oct 14

    In response to several emailers:

    Like the disclaimer says, ” The information on this site is provided for discussion purposes only, and are not investing recommendations”

    I am amazed how many people tell me they are short based on this blog. Which part of “I am a Seller into rallies” means that you should go at risk short?

    Just because the SATs were eons ago does not mean we are done with Reading comprehension, people.

  8. rob commented on Oct 14

    I’m short some stuff but certainly not due to a blog, lol. Not everything is getting jiggy with the rally. Long some stuff too.

  9. Paul Jones commented on Oct 14

    I think the problem is that people take the analysis of what is happening to the American Middle Class and try to apply it to “the stock market” (the Dow). Am I safe to say that the Dow is as removed from the American economy as it has ever been?

  10. chris commented on Oct 14

    I posted this in an earlier discussion but it got lost in the shuffle. Would still like to hear peoples take on it, basically Bernie Schaeffer is calling for another 15% meltup rally into yearend. Chilling reading is your are bearish but what realistically are the odds of this??

  11. V L commented on Oct 14

    Bulls have prematurely declared their victory and some bears have already accepted their defeat but the earning season has only begun and expectations for strong earnings are already priced into the stocks.

    All you hear everywhere in the media is about the Dow reaching all time highs but nobody cares to mention that two Dow components that have reported so far (AA, GE) have disappointed and their stocks went down. Next week we will hear from other Dow components like IBM, HON, MMM, CAT. It will be interesting to see not only what numbers they will report (their stocks are priced for perfection with blow out earnings) but more important about their outlook going forward.

    In addition, we will get PPI and CPI numbers next week – any confirmation that the Fed is not done raising rates will spoil current “The Fed will cut rates party” and reverse the trend.

    Joe Battipaglia like most of us is suspecting that hedge funds had a hand in this trend.

    JB: “Those hedge funds that were short the market have been running for cover and those that are looking to participate need big liquidity names and some of these tech stocks offer that liquidity”

    It will be interesting to see what these hedgies will be doing next week when tech giants like AAPL, GOOG, YHOO, IBM will be reporting next week (again the outlook going forward will be more important)
    Self congratulating bulls may be setting up themselves for huge disappointments in coming weeks.

    It is not over until it is over.

  12. Mark commented on Oct 14

    Agree with VL. I have been targeting next week as well. If the numbers and reports there come in good then I am definitely increasing my longs in the most liquid, hedgable medium I can find. Jim Stack has noted the improvement in this market’s internals and John Hussman as well. While Hussman will only take a more constructive position on a pullback I bet Stack will add long exposure immediately. Those are two of the most conservative investors I know and damn fine analysts.

  13. royce commented on Oct 14

    I like Abelson’s call on the market psychology, but his examples of worries are pretty lame. Iraq? North Korea? Democratic victory (gasp! sputter! the horror, the horror…). Why did he choose those over say, inflation and the air coming out of the housing market?

  14. calluci commented on Oct 14

    My weekend top down look sees an incredibly broadening market. Commodities are about the only downtrend and a lot of bottom feeders showing up. Ditto japan. Impressive steady up longtrend of reits. These must be in everyone’s portfolio as a hold and more portfolios are coming on board. And, emerging mkts have nine lives. Everything keeps getting goosed higher. It’s like there are no more games to play. Hard for me to allocate fresh money. I have to remind myself that making any money with MM interest and my moderate equity exposure is good enough. I don’t have to be head of the pack.

  15. DD commented on Oct 14

    Nothing makes people forget about their debt like a good old fashion war. Definitely time to start another war. Lets get that little Chinese guy.

    b- you and abelson should just kiss and get it over with.

  16. teddy commented on Oct 14

    Excluding inflation, there has been no inflation for the last 2 years. However, if you exclude the non-essentials for living or discretionary items, the inflation rate for EACH of the last 2 years in the US has been around 10% regardless of what the mindless data from the Fed states. Now I see that the grain prices are shooting up because of the poor harvest and there is a shortage of grains in storage, so we should see food prices going up again at the supermarket and the restaurants except for maybe fast food. Will the stock market see this as good news? Maybe, because the reported stock profits in the market never took into account that most of it was the result of inflation.

  17. Zephyr commented on Oct 14

    Market rising on good and bad news – Is this irrational?

    Seems that the market has for the last year or so priced in the bad news to some extent. At this point the bad news is not news. So more of the same converts no new bears, but potentially reduces fear if the expectation was worse than the actual news.

    Obviously, good news should be positive if it is not already priced in. I think people have been expecting more bad news – so the good news is a bullish surprise.

    Democrats winning ground in congress will potentially deadlock the legislature. The less that our legislators enact into law the better. I understand that this is generally good for stocks.

    So, while I am among those who expect a downturn, the current enthusiasm does not seem strange to me. I have been selling into this market since March, and I will continue to do so at a measured pace.

  18. S commented on Oct 14

    It’s amazing how the higher the market goes, the more bulish and complacent people become. I guess investors really do believe they have a God Given Right to a 4Q rally. So we’ll have one. Probably. Maybe. Perhaps.

    The decline in oil prices and treasury yields was at least partially responsible for the rally since July. Because of our GGR to a 4Q rally, we’ll ignore the fact that oil seems to have stabilized. Or it may be starting to inch up again. No worries. And we’ll also ignore that money is getting sucked out of treasurys as fast as it went in, pushing up yields. No biggie. No need to concern ourself that not a single executive of a publicly traded homebuilder can say they’ve seen the bottom yet. Or that on a SAAR basis, housing starts are 300,000 fewer this year than last. NO worries. Rally on. And who cares that GM and Ford, between them, plan to close 27 plants, massivley cut back on production, layoff several thousand workers. It’s all good.

    And let’s all forget what happened in May when the world’s second largest economy decided to stop its policy of “quantitative easing” and sucked 26 trillon yen from its money supply. Yesterday, on Friday the 13th, that same economy reported producer prices rose the most in 25 years, to 3.6%. What do we suppose will be the BOJ’s policy response? No worries for all those who piled back into the carry trade.

    You’ll never get a chance to buy ’em cheaper. Rally on, it’s our GGR.

  19. wcw commented on Oct 14

    Index volatilities are preposterously low. Just look at the chart (GIF). If you’re buying like calluci, own cheap puts. If like me you’re fading select groups (homebuilders, energies) on rallies, own cheap calls.

    Despite sharing many of Mr. Ritholtz’s misgivings about the next few quarters of production, I am 100% net long via index calls alone, and own other calls on some of the better-performing groups (e.g., AMX/HTX-style emerging telecoms). In short, I think both Ritholtz and Schaeffer are right.

    Calling tops is indeed hard, but I plan to start scaling into equally cheap index puts if the market continues to rally.

  20. Craig H commented on Oct 14

    I watched two hours of business shows on Fox news Saturday. Everyone was bullish. Nobody mentioned interest rates having risen.

    Just saying…

  21. Mike B commented on Oct 14

    The issue regarding democratic control of both houses is that they will not renew the Bush taxcuts set to expire in 2008. These include the dividend & capital gains taxcuts. This will definitely have an impact on stock market prices, but the question is: when will it be priced in? 2006? 2007? or 2008?

  22. DD commented on Oct 14

    “business shows on Fox news”

    at one point i almost threw up when one of those ladies said something stupid. havent watched that crap in a long time funny that you mention it…

    “buying ndaq is like doubling down” nuff said…

  23. V L commented on Oct 14

    Re: Bernie Schaeffer and His Conditional (Speculative) Predictions

    “The S&P would need to rally by a shade over 15 percent (from its close on Friday, 10/6) to surpass its all-time high set in March 2000. I see no reason why such a rally can’t occur between now and year-end, thereby wrong-footing a vast swath of market players.”

    This is like saying I see no reason why I can’t win lotto tomorrow. Yes, there are no reasons but it is extremely unlikely. Seriously, I see no reason as to why such a rally will occur. Could? Maybe? But not likely.

    Bernie Schaeffer’s reasons:

    1. “And per the Investment Company Institute, year-to-date (through August) inflows into world equity funds totaled $102.8 billion, compared with just $16.9 billion for U.S. equity funds.”

    I still did not get a sense as to why he thinks that all of a sudden this trend will be reversed. If such a small fraction of funds was flowing into US equities during our recent economic boom, why more funds will be moving into the US at times of economic slowdown or even a recession? Why???

    2. Hedge funds “have been heavily involved on the long side in the commodities/precious metals/energy play as well as in the small caps.”

    So what? It is still not clear as to why they (all of a sudden) will decide rotating into S&P. Yes, they are rotating out of commodities, but why into S&P???

    3. “The huge preponderance of the options activity on the S&P … The net impact of this derivatives activity has been to dampen the movement in the S&P.”

    I think he is confusing the cause with effect: option activity dampens movements in S&P??? Is he suggesting that option traders manipulate S&P stocks???

    4. “The “crash protection trade” is very crowded, and it is confined almost exclusively to S&P-related derivatives… Should the S&P continue to outperform the “tried and true” leaders of the past few years, there could a snowballing flow of money out of these crowded trades and into the blue chips.”

    The key word here is “should the S&P continue”. In other words, if this “should” will become “should not” (for a number of reasons) all his analysis will collapse.

    I find it hard as “Bernie Schaeffer is calling for another 15% melt up rally into year end”. He is just saying IF “S&P continue to outperform” we MIGHT see some sort of magnifying effect “a snowballing flow” and it is only IF…
    This is like saying IF N.Korea nukes Japan by the end of this year we will see global markets crash by the end of this year – both predictions are too conditional and unlikely.

    The only part of his writing that can actually hold water: “In fact, noted technical analyst Gail Dudack already observed the following in the 10/4/06 issue of The Wall Street Journal: “Another boom for large-cap US stocks is that trend-chasing investors are shifting out of commodities and emerging markets and putting their money into US blue chips.”

  24. ~ Nona commented on Oct 14

    Zephyr, thank you for your thoughts, which help to explain the (so far) steady, upward bad-news-is-good-news price movement.

  25. anon commented on Oct 14

    I have to agree with V L re Bernie Schaeffer’s piece.. I found it unimpressive, and some of his claims were dubious at best.

    For instance, he implies the S&P 500 has been leading recent performance. Not so. Over the past 3 months the Russell, the Nasdaq, and emerging markets (EEM) have all beaten the S&P.

    His talk about derivatives positions wasn’t that convincing either.. as Phil Erlanger wrote on the same site (“Don’t Be Short Sighted”), equity derivative aren’t that big a piece of the puzzle.

    With a lot of large-cap stocks (MSFT, INTC, CSCO) up 25-40% in the past 3 mos, I think the surprise move Mr. Schaeffer is predicting has already happened.

  26. DavidB commented on Oct 14

    I don’t know why people bother focusing on the news at all any more. It really has very little to do with big picture market events and I have found it to be more of a distraction than anything else.

    What people have to understand is that what comes out of the end of the hose is entirely dependent on what goes into the hose. Sure, people can cut the hose or pinch it to stop the flow(and keep in mind that this is not a fire hose but one of those cartoon hoses whereby if you do pinch it, it will baloon up and explode making the pincher all wet) but it is the guy at the spigot that is deciding how much flow is coming out the other end. The news is just the clowns along the way that the hose twists around.

    With that understanding as long as the fed continues to pump money into the system then money will continue to push the market up at the other end. Yes, we will have balooning sections like the nasdaq and the housing markets but all in all the fed will decide when the next depression is. Remember that the last time there was a depression in America was when the fed contracted the money supply by 30% over a decade. I’m not sure that will happen again unless there is a more sinister plan involved(like starting another world war?). If it does you can rest assured that Bernanke and his boys will be the primary authors of it.

    Put down the newspaper and pick up the fed minutes Barry and you can understand the mystery that is the market as well. It is a lot simpler than you think

  27. Estragon commented on Oct 14

    Could some of the more options savvy among you help me understand part of the “melt-up” …

    “The huge preponderance of the options activity on the S&P is involved with buying puts to protect downside and selling calls (and, in some cases, puts) to generate “income.” Put open interest in the front three months on the S&P 500 index options is approaching an astounding four million contracts, and put open interest on the S&P “SPYDR” exchange traded fund just reached a record level compared to average daily volume”

    It seems to me that put buyers/call sellers are most likely long the underlying equity, perhaps because they’re mandated to be, and the trade is a hedge.

    Is the reverse true (the call buyers/put sellers are short)? The put sellers on the other side of this trade have minted “free” money as the S&P has trended upward nearly unabated and the puts expired worthless.

    Although the crash protection trade has become crowded (“out-of-the-money puts on the S&P are priced approximately 70 percent higher than their out-of-the-money call counterparts”), I have to wonder which side of the trade has the stronger hand. It’s the balance of power that I’m wondering about.

    If I was a big fund with a portfolio of highly liquid and well hedged blue chips, now wouldn’t be such a bad time to start a bit of a run by blowing out some merchandise. If the put sellers are weak, and need to short as the puts go in the money, the run would gather downside momentum. When the move exhausts itself, get your merchandise back lower and still show you’re fully invested by the end of the year.

    The article mentions put open interest at record levels relative to volume, but AFAIK short interest is middling relative to volume. This seems to suggest the put sellers are increasingly unhedged, and are more vulnerable than the largely hedged call sellers. Does this make any sense to you options types?

  28. teddy commented on Oct 14

    DavidB, since most of us can’t see the spigot (no transparency) and since looking down the end of a hose could be dangerous (sh*t happens you know, especially when the Fed is conducting their stream of consciousness), would you please act as a sentinel for us and let us know what they’re doing? I bet you are retired and shorted the market right before the crash 5 years ago. Maybe you could start your own blog to help us mere mortals.

  29. V L commented on Oct 14

    anon: “With a lot of large-cap stocks (MSFT, INTC, CSCO) up 25-40% in the past 3 mos, I think the surprise move Mr. Schaeffer is predicting has already happened.”

    Yep, it appears that the end of a year tech rally has already happened.

    Confirmation from S&P: Dow component MSFT was downgraded by S&P to 3 STARS (hold) from 5 STARS (strong buy): “Microsoft announces Windows Vista is on schedule for all customers and geographies. Delivery of worldwide availability for volume license business customers will occur next month; delivery on a general basis will take place in January. We see confirmation of the prior timetable as a positive, especially given the importance of Vista and the previous multiple delays. However, the shares have risen some 33% since their June 13 low and are now appropriately valued, in our view.”

  30. DavidB commented on Oct 14

    Hi Teddy,

    Nope, I’m not retired. I’ve got another 25 years before I will officially enter those ranks

    As for the spigot, you can’t see it perfectly but you can see a lot more tell tale signs than what the ‘news’ will tell you.

    Do you know about the M’s of the money supply at all? That is a good start. You can get the discontinued M3 here. You need to scroll down a bit

    Watch the money supply and though you can’t get MZM you can get the other money supply numbers. It safe to assume that as long as the money supply stays above 5%, prices(for everything) will continue to grow. You can also watch the interest rates and listen to what the fed is saying. The final thing would be to check out open market operations which is where the fed forces its interest rate down our throat. That is published in various forms on the web and from the fed themselves.

    There is plenty of data out there that is much more useful than the ‘news’. I don’t follow it too closely myself but then again I don’t need to because I try to buy stakes in good quality companies that perform apart from the market(I’m a value guy). I know it is the dog that wags the tail and not the other way around so just watch what the fed dog does and and where it goes in general and, barring any crisis(which is where the tables can turn sometimes), the market tail will be forced to follow along

    That’s my opinion

  31. teddy commented on Oct 14

    DavidB, I wish following the money supply was more than just a very crude way of seeing what was happening with the economy since we are no longer in a closed system, but rather in a global economy and also there has been a secular concentration of wealth in the US for the last 20 years for many reasons. As the global economy develops with its consequent concentration of wealth in the US (no manufacturing), it will take lower and lower interest rates and higher and higher rates of increase in M3 to effect a change in GDP assuming the velocity of that money is a constant, which it isn’t.

  32. V L commented on Oct 14

    From my post above: Self congratulating bulls may be setting up themselves for huge disappointments in coming weeks.

    It does not look good for forward looking statements.

    “CEOs are also less cheerful about the short-term outlook. As of the third quarter, only 16 percent of business leaders expected economic conditions to improve in the coming months, down from 21 percent the previous quarter.”

  33. Bob commented on Oct 14

    T. Boone Pickens said last week to expect $70 again before we see $50 /brrl oil. This guy has been pretty accurate lately.

  34. wcw commented on Oct 14

    He’s also talking his book. Take him with a grain of salt.

  35. Mark commented on Oct 14

    The market needs saps to sell at the bottom(accumulation), and suckers to overpay at the top(distribution). If you are price sensitive you will always be buying into weakness and selling into strength.

  36. diva commented on Oct 15

    “Good advice.

    Except I heard the same thing in January 2000 and October 2002.

    The market is right, except when its wrong.”
    The hard part for me, this time……. is that I knew to get out in 2000 and to buy in Oct of 02 – thanks to my guru = Jude Wanniski.
    He passed away in 05……
    Now I’m not sure, and see the Fed as the prime risk.
    So….. I’m watching from the sidelines (mostly) at this time. Inflation is not going to go down……
    The Fed will have ‘an opportunity’ to make some more mistakes.
    Meanwhile I can get 5+% on my ‘cash’ and sleep at night.
    07 should be a very interesting year…..
    [love your blog Barry!]

  37. Mark commented on Oct 15

    Gee, ANOTHER “Mark” is posting here! At least it is giving yet another (fourth I’ve seen in a week) email address. Barry, I do not know the reason for what is going on but could you have your admin see if this is just one “Mark” and one IP address and if so, ban the little sucker? I think the “you have a common name” excuse/defense is more than a little lame under these circumstances. Thanks.

  38. alexd commented on Oct 15

    First a big thank you to David B on the m3 site.

    Does anyone here ever look at any market besides the US stock market and that, in the most general terms?

    Is this a reflection of the shortsightedness that many Americans (assuming you are from the USA, apologies to those who are not) seem to have? I am seeing a pickup in other economies and markets. Although we are a very big market when I look at he world in terms of regions I see major markets along with sub markets.

    Let me share: Although there is always work to be done, the USA/Europe has quite the developed physical infrastructure. From what I have read ( If anyone wants me to travel on their dime to investigate please contact me!) many other countries and regions need to build up their infrastructures. This relates to demand. I think we need to get in between source and demand and filter out our take. MMMMMMM cement,mmmm zinc, mmmmm technologies, mmmmm you get the idea.

    Any one here ever think about how cell phone technologies has allowed areas of the so called 3rd world to bypass all that wiring with “cell” phones? All of a sudden millions of lbs of human brains get to reach out to each other over vast silences. Think they are not going to talk about their concerns to each other? The rate of change itself, is increasing. Lets make sure we are not applying 19th century ideas to 21st century situations.

  39. DavidB commented on Oct 15

    First off, Alexd,

    you are welcome. I first got that link from a poster on this blog a while back so I am now returning the favor.

    Secondly, Mark,

    you should add a little uniqueness to your posting handle. At least that way it is more evidential that you are being copied

    and finally, Teddy,

    Has the concentration of wealth caused a discernable change in the markets? I would love to see if there is data on that. All I know is that good buys are still good buys and that the big boys dis them until they have loaded up their pockets. Then suddenly the dog is a beautiful thing again. Nothing has changed much. If anything the game is just a little quicker and more efficient these days.

    If you’re sharp the game is still there because that’s how they like to play it. You also can’t rule out the human element. One of my favorite trades is identifying quality management that is outperforming their peers or the economy. I believe that character and style tend to be consistent and it will show up in the way a CEO manages his company both on the good side and the bad side.

    Those things can only be determined over longer periods and by the time a manager has built up a track record of consistent performance he has won the job until he no longer wants it. Thus he will probably perpetuate his performance going forward

    Also, the big boys can’t easily get into the small plays without causing major distruption to the price. That gives the smaller player a huge market to play in that the big boys won’t touch until we deliver it up to them in size

    As for the Fed and the money supply, we are not talking about micro moves here but the fed is working very hard behind the scenes to influence the general direction and the general direction they seem to be aiming for is a slow motion devalutation of people’s savings and dollars over time. I haven’t seen any evidence that this has changed at all with globalization. The reason for this is because the other economies of the world are also governed by central banks and fractional reserve banking systems and those banks are following the same basic game plan as the fed.

    What they do is systemic and there is no significant financial destination that you can go in the world where the game is any different. You could read the minutes and money supply figures from other CB’s I suppose but that is like trying to get a different spin on the news from two different sources in the main stream media….especially when it comes down to the bottom line issues. They are all on the same team and we are the (willing?) pawns in their game. They want (relatively) satiated pawns though, it keeps us quiet that way

  40. teddy commented on Oct 15

    DavidB, I agree with your microeconomic view which deals with generalities that we all espouse, but you are missing my point about money supply and concentration of wealth. This is a huge factor in the world of macroeconomics right now, not only in this country, but elsewhere. This is the new paradigm which demands asset inflation to keep the worldwide financial bubble from bursting and whose basic premise is suspect except on computer programs using highly sophisticated mathematical formulas.

  41. DavidB commented on Oct 15

    The way I see it there are three scenarios that can happen. The bubble can keep on growing. That would happen if the fed(and other CB’s of course) continues to print money faster than what the economy can reasonably absorb it. That will result in a pop at some time. I don’t think the fed is interested in this option for obvious reasons

    The bubble can also be rapidly popped now by a reduction in the money supply. For even more obvious reasons this won’t happen either.

    The third option, which is what is currently happening I believe, is the fed will continue to attempt to print money at a rate that will conitnue to support the economy while we work our way out of this bubble. I am assuming that rate of money supply growth is between 2% and 8%. This is in the best interest of the fed and seems like their only alternative

    Theoretically there will be a rate of growth that can deflate the bubble slowly without causing a panic. Do I believe the fed can find it? I believe they are bending their will in that direction and I don’t think the problem is as complicated as everyone would have us believe. I don’t think this is a dynamic problem but a static one. The problem is finding the ideal rate which is what the people at the fed are paid to do

  42. Peter commented on Oct 15

    The big money managers and Wall St firms have been taking the indexes for a ride since the lows of summer … it seems they are pressing hard until most are bullish and then the rug gets pulled out … and down we go.

  43. Mick commented on Oct 15

    It’s always easy to make the bearish case. Lots of negative facts around at any one time !
    Ken Fischer (btw, I do not like or endorse his firm) has been one who publicly projected this bull market. Based on what ? Mostly fundamentally strong economic growth worldwide.
    What a concept: since when does the market reflect the real world ?
    This cannot possibly last for long.

  44. Mark commented on Oct 15


    Thanks for the tip. Nice unique handle you have.

  45. Cathy commented on Oct 15

    This site is called The Big Picture, but I am amazed at the number of bears who have failed to see it.
    The Big Picture is that the US is enjoying low interest rates and when coupled with a low S&P p/e it shouldn’t be surprising the market is rallying – and likely to go much higher as long as interest rates stay relatively low and there are no major geo/political shocks.
    I have seen the argument that p/e’s can go much lower, but I don’t buy it. The only time p/e ratios were much lower than todays level is when inflation/interest rates are very high. And the comparison’s I’ve seen to 1972 are ludicrous. The money supply was out of control, the Fed had no clue what they were doing and there were rampant wage/price spirals.
    Who wants to buy long bonds below 5%? Who wants to speculate on the housing market right now?
    Without reasonable alternative investments the stock market is exceptionally attractive at these levels.
    This is the Big Picture to me. I may be wrong, but I don’t think so.
    The reason people are ignoring the bearish news is that they have little/no long term consequences. Keep your eye only on inflation – if that starts moving higher that’s when you’ll get a major correction, not before.

  46. Mark commented on Oct 16

    Low interest rates? Show me.
    Low P/Es? Show me.

    Neither of these statements are even remotely true, Cathy, thanks. We have elevated PEs on record earnings and profit margins, both mean reverting series if you care to look. These interest rates are not terribly high compared to the 70s true, but you picked out a straw man there to knock down haven’t you?

    “The reason people are ignoring the bearish news is that they have little/no long term consequences. ”

    TRUE, thanks to the Greenspan Put. But I think you will not like the end to that bit of moral hazard either. It won’t be pretty. Or do you think that it’s now the Feds job to keep asset classes inflated? If so, the flip side to that is $USD devaluation and goodbye to price stability. So far, so good though with the Fed talking tough (“managing inflation expectations”) and flooding the system with money. It works until it doesn’t even if they do give Nobel Prizes for the concept.

Posted Under