With the ferocious market rally over the past month that has taken the S&P 500 to the highest level since Sept ’08 at the same time the US economy continues to heal and corporate America keeps knocking the ball out of the park, I can’t keep but wondering how much of the improvement in all of the above is due to zero nominal and negative real interest rates and how much is due to the natural order of the economic cycle. There is no question it is a combination of both but is a zero interest rate environment a proper gauge of what’s real and what’s artificial, what’s organic growth and what’s juiced by easy money all over again. The question will only be answered for sure when short rates (likely coincident with long rates) start to rise again and when the US economy has to be left on its own without the crutch of cheap money. Until then, party on Wayne, party on Garth!
A WSJ report quoting a Greek official saying “fact is there is no strong interest in the US for Greek debt” and that Greece may cancel plans for a global dollar bond deal if they can’t sell the minimum necessary has sent Greek bonds lower again. They are off their lows though after a Greek Finance Ministry official said they will still go forward with a US road show. Outside of the continued problem in Greece, Portugal debt is feeling the contagion as yields there are rising to the highest since late Feb. China’s Q1 GDP rocked with a better than expected 11.9% gain but it immediately came with concerns of more tightening steps to prevent overheating even though March CPI was less than forecasted. They did raise down payment requirements on 2nd homes to 50% from 40%.