I noted in yesterday’s post that individuals, while still fully invested in the financial markets, are saying they are extremely bearish on the market. To wit:
“Speaking of the Fed, the surge in the market over the last couple of days have many scratching their heads despite deteriorating economics, weak earnings and poor geopolitical news. Of course, given the series of emergency Fed meetings, the markets are currently beating on a much longer time frame to the next, if ever, rate hike.
Most interesting is what investor sentiment, both individual and professional, has recently accomplished.”
“Accordingly, the chart above, investor sentiment suggests the market has just completed a recessionary ‘bear market’ with virtually no substantial losses.”
The problem, of course, is that while prices are rising back towards previous highs the fundamental and longer-term technical backdrop has deteriorated markedly. The answer, to why this is happening, of course, lies with Central Bankers. With the ECB, BOJ and BOC all pushing liquidity directly into the global markets, the only bankers talking about “tightening monetary policy” was the Fed. Of course, the reality is with the Federal Reserve now visibly trapped at the zero-bound, the playing field remains clear for the chase for yield.
As has been often repeated:
“With interest rates at zero, there is simply no other choice available. So, buy stocks.”
“No, perhaps what she [Yellen] is now realizing is the deep trap she is in. Her cabal of economists have long since assured her that government, corporate and household debt service is so low that history itself has been rewritten. But therein lies the mother of all Catch 22’s, wrought by nearly 30 years of central bankers encouraging, enticing and imploring debt-financed spending while punishing, penalizing and all but outlawing saving.
Yes, the debt service is at record lows, but the mountain of debt that’s been accumulated dictates that the only thing the economy can withstand is low rates in perpetuity. The alternative is simply unimaginable. There would be widespread ruin and perhaps even the bankrupting of a great nation.”
And there you have it – completely rational confusion.
Stocks can’t be allowed to go down as the negative “wealth effect” will cripple economic consumption leading to recession. Therefore, Central Banks must keep the “hamsters” on the wheel while they hope the economy will eventually play catch up.
So what do you do? Play the short-term chase the market game or the longer-term wealth devastation game. The choice is yours to make, the consequences will be for all to share.
However, as I discussed earlier this week, markets are made by dissenting views. This weekend’s reading list continues in that fashion.
- Don’t Rule Out Helicopter Money by Ben Bernanke via Brookings Institution
- Federal Reserve’s Clock Just Hit 13 by Tad Rivelle via Trust Co. Of The West
- Funny Things Happen At Zero Rates by Matt O’Brien via Wonkblog
- China In More Trouble Than Fed Thinks by Wolf Richter via BI
- What Would Be Necessary For More QE Or NIRP by Bob Janjuah via ZeroHedge
- Heard At Every Major Peak: This Isn’t A Bubble via Reuters
THE MARKET – BULL vs BEAR
- Triple Threat Earnings Season by Owen Williams, CFA via Seeking Alpha
- Looking At Shiller’s Cape by Gubb via Gubbmint Cheese
- The Complete Bear Case In Charts by Northman Trader
- Will The Profits Recession Lead An Economic One? by Anthony Mirhaydari via Fiscal Times
- Why Is The Stock Market Acting So Wacky by Larry Light via Forbes
- Suckers Rally Or Bull Market by Paul La Monica via CNN Money
- The New Mediocre by Dr. Ed Yardeni via Dr. Ed’s Blog
- Lack Of Volume Is A Cautionary Sign by Kevin Marder via MarketWatch
- Earnings Recession Will End Soon by Mark Haefele via UBS
- We Are In A Classic Investor Trap by Med Jones via MarketWatch
- Are Bears About To Be Crushed…AGAIN! by Anthony Mirhaydari via Fiscal Times
- S&P Is In “1 Cookie Now Or 2 Later” Zone by Simon Maierhofer via MarketWatch
- Did The Bull Market Just Restart? by Dana Lyons via Tumblr
- Why Short Sellers Are Loving This Market by Victor Reklaitis via MarketWatch
ECONOMY & OIL
- Iran’s Massive Oil Fleet Begins To Move by Tyler Durden via Zero Hedge
- The Global Economy Didn’t Change, Views Of QE Did by Jeffrey Snider via Alhambra Partners
- Why Low Oil Prices Didn’t Help The Economy by James Hamilton via OilPrice.com
- An Impossible Trinity For The Economy via Myles Udland via Business Insider
- 10 Biggest Risk To US Economy Rebuked by Nicole Sinclair via Yahoo
- What’s Really Driving Oil Prices by Mark DeCambre via MarketWatch
- Oil Says Economy Improving, Bonds Disagree by Paul Lim via Time/Money
- Expectations For Doha May Be Inflated by Marc Chandler via Real Clear Markets
- Has The Fed Bankrupted The Nation by Danielle DiMartino-Booth
- Pension Reality Much Worse Than You Think by Joshua Rauh via Hoover Institution
- Uber Rich-U by Salil Mehta via Statistical Ideas
- The S&P 500 Is Obscenely Overvalued by John Hussman via Hussman Funds
- Truth Discovery Takes Time by Vitaliy Katsenelson via Institutional Investor
- Estimating Future Stock Returns by David Merkel via Aleph Blog
- Fading S&P 500 Volatility by IronMan via Political Calculations
- Surpise: ACA Will Cost $136 Billion More, Cover Less by IBD
- What Separates Extraordinary Investors by Jesse Felder via The Felder Report
“I will tell you my secret: I never buy at the bottom and I always sell too soon.” – Baron Nathan Rothschild