Best of the Week
Most Popular
1.Stock Market Continues Defying Gravity, Dow New All Time High - Nadeem_Walayat
2.America Superpower 2016 - Ian Bremmer
3.The US Dollar and the Precious Metals Complex - Rambus_Chartology
4.UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - Nadeem_Walayat
5.The “Real Flash Crash” Will Scare You to Death - Shah Gilani
6.Gold Price Trend Forecast - Bob_Louka
7.UK Deflation Warning - Bank of England Economic Propaganda to Print and Inflate Debt - Nadeem_Walayat
8.Gold Lifeboat to Global Economies “Titanic Problem” Warn HSBC - GoldCore
9.Will Interest Rates Ever Rise? - BATR
10.Who’s Killing the Stock Market? - Shah Gilani
Last 5 days
Crude Oil Price Stochastic Signals - 26th May 15
Why the Stock Market Will Crash - 26th May 15
GDP, Inflation, Employment Economic Statistics: It’s All a Lie - 26th May 15
Introduction to Peak Food - 26th May 15
Should We Dump the Euro? - 26th May 15
A Geopolitical Net Assessment of Europe - 26th May 15
Stock Market Top in Place? - 26th May 15
Best Cash ISA SBI 2.3% - 2.8 Year Fix, UK Interest Rates 2016 - 26th May 15
China Sets Up Gold Bullion Fund For Central Banks - 25th May 15
Is The Silver Trade Getting Crowded? - 25th May 15
Money Murder Mystery: Who Killed the Stock Market? - 25th May 15
Why Do We Celebrate Rising U.S. House Prices? - 24th May 15
Mario Draghi’s Slippery Downward Slope - 24th May 15
Gold : Truth is Stranger than Fiction - 24th May 15
Facebook Stock Price Forecast - 24th May 15
Make a Killing on the Coming Energy "Debt Bubble" - 24th May 15
Stock Market SPX Uptrend Inflection Point - 23rd May 15
What You Know for Certain - Huge Demand for Gold And Silver - 23rd May 15
Are We in Another Credit Bubble? And Is It Different than Before? - 23rd May 15
The “Real Flash Crash” Will Scare You to Death - 23rd May 15
Venezuela: No Rule of Law, Bad Money - 23rd May 15
Robots That Can Beat the Market by 100% - 23rd May 15
Why Shake Shack Stock Is a Bad Investment - 23rd May 15
Gold Price Primary Driver Bullish - 23rd May 15
Time To Get Real About China - 22nd May 15
Gold Lifeboat to Global Economies “Titanic Problem” Warn HSBC - 22nd May 15
One Investment Could Save Two Generations' Retirements - 22nd May 15
Investing is About Identifying Gifted and Talented Camps - 22nd May 15
One of Europe's Latest Debt Nightmares - 22nd May 15
UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - 22nd May 15
America Superpower 2016 - 21st May 15
Stock Market Secular Versus Cyclical Investing - 21st May 15
Banking Stocks Break Out with Higher Bond Yields - 21st May 15
The Tech Portfolio Built to Beat the Market - 21st May 15
Gold “Less Sexy” Than Bitcoin … For Now - GoldCore on CNBC - 21st May 15
The Russia-West Rivalry in the Balkans - 21st May 15
The US Dollar and the Precious Metals Complex - 21st May 15
Gold GLD ETF Drawdown Continues Unabated - 21st May 15
Who’s Killing the Stock Market? - 21st May 15
Your Best Way to Profit from the Narrowest Market in 20 Years - 21st May 15
Government Regulation and Economic Stagnation - 20th May 15
It’s Time to Hold More Cash and Buy Gold - 20th May 15
Choppy Asian Stock Markets - 20th May 15
Countdown to Global Financial Collapse - 20th May 15
Will Interest Rates Ever Rise? - 20th May 15
How to Cash in on Amazon Stock’s Amazing Cloud Success - 20th May 15
Three Hidden Forces Pushing Crude Oil Price Back Up - 20th May 15
U.S. Housing Market Strong Numbers in Perspective - 20th May 15
Greece Debt Crisis - Obama Has A Big Fat Greek Finger - 20th May 15
Now Is the Time to Own the Oil & Gas Leaders - 20th May 15
UK Deflation Warning - Bank of England Economic Propaganda to Print and Inflate Debt - 20th May 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Biggest Debt Bomb in History

Dow 15,000 - Stock Market Irrational Exuberance

Stock-Markets / Stock Markets 2013 May 10, 2013 - 06:27 PM GMT

By: Andy_Sutton

Stock-Markets

Every so often the mainstream does get it right; they just don’t realize it. Or maybe they do. There is an old saying that every lie has 90% truth otherwise nobody would believe it. The hysteria over the Dow’s recent punch through the 15,000 level has everyone associated with stocks almost giddy. Or maybe totally giddy. Or maybe totally disconnected from reality. Take your pick.


The article I’m going to dissect can be found easily by a quick search, but it really doesn’t matter who wrote it or where it was published. What matters is the content and the rationalizing that takes place. That alone is worthy of analysis and commentary. Before we get started, I will go on the record as not really caring about Dow 15,000. Having been in this industry for quite a few years now and an investor for nearly 20 years, I understand the irrelevance of ‘indexes’. Sure, if we buy some index ETFs, etc., we can ‘make money’. But are we really investing? Let’s take this article apart and you’ll get a pretty good idea of where most folks are coming from these days.

“The Dow Jones Industrial Average closed above 15000 for the first time Tuesday as stocks continue a historic four-year run that investors are finding increasingly irresistible.

The Dow is off to its fastest start to any year since the dot-com-fueled bull market of 1999. But this time around the surge isn't driven by blind optimism—many investors simply see few alternatives to stocks.”

Not driven by blind optimism? Notice the direct contradiction between the first and second paragraphs. ‘Investors are finding increasingly irresistible’ vs. ‘the surge isn’t driven by blind optimism.’ First we must question who these ‘investors’ are. I’ll say the same thing I said back in 2009 when this rally was kicked off: This is not Ma and Pa Main Street digging for quarters in the sofa to buy stocks. This is mostly large institutions, banks, and hedge funds dumping the money the not-so-USFed continues to pump into their coffers in exchange for illiquid mortgage bonds and other junk assets.

Quantitative Easing is the Air in the Bubble

They call it quantitative easing. Bubbles Bernanke missed the housing bubble his institution helped to pump up and of course he’s missing this one too. The big lie about QE was that it was going to help the economy. I’ll say this loudly one final time: The stock market IS NOT the economy. How does giving a bunch of banks a trainload of cash for their worthless ‘assets’ help the economy anyway? All this type of activity does is create more bubbles. The not-so-USFed loves QE though, because it helps them direct where the money goes. A good portion of that money has been used to short gold and silver and bolster confidence in the dollar. Some has been used to purchase USGovt debt. Some has gone into the equity markets. With wages stagnant and the cost of living increasing it is reasonable to make the assertion that this massive stock market rally isn’t being spearheaded by a healed and suddenly re-energized American taxpayer.

I’ll add a bit of history here. The small investor nearly always does the exact opposite of what they should be doing. They buy the tops and sell the bottoms. We can see more and more of this mentality at work as people who have little to nothing in the way of investable assets are beginning to clamor to get a piece of the big rally. As they article said, people are finding it irresistible.

Traders say the stock market's march into record territory has been fed by a steady stream of buying. That includes smaller investors who had for the most part shunned U.S. stocks in the years since the financial crisis.

"This has been a pretty resilient market," said Sean Lynch, global investment strategist at Wells Fargo Private Bank, which oversees about $170 billion in assets. "Investors have played the worry game, and those that have sat on the sidelines in cash are starting to question that."

I guess the point of Mr. Lynch’s comments is that we shouldn’t worry about Europe in recession, China sputtering, and a homeland economy that requires steady and massive infusions of debt-sourced government spending to keep the wheels from falling off. The truth is we’re desensitized to crisis simply because there have been so many. People have already forgotten 2008 and they’ve forgotten the markets amazing volatility while Congress fiddled with the debt ceiling back in July of 2011. The rally marched on through it all, fueled by every-increasing amounts of QE cash.

In Q1’s edition of the firm’s newsletter I wrote about the wealth effect and how critical it is to propping up the USEconomy. A rising stock market and sound bytes such as are highlighted in this article are necessary contributing factors to the wealth effect. The government and banking sector are also doing anything and everything to re-inflate the real estate bubble. We’re back to the land of zero-down mortgages again. Rates are at historic lows thanks to monetary malfeasance. Anything to keep the spending (and more importantly) the accumulation of debt going. And in typical Euroland fashion, we’re more than happy to accommodate.

Fueling the growing confidence in stocks is a sense that the U.S. economy is healthy enough that recession isn't a concern but not so strong that the Federal Reserve will pull back on its aggressive measures to ease monetary policy.

The Fed's efforts to keep interest rates extremely low are seen by many as a key driver of the rally.

In recent months, the blue-chip Dow has seemed particularly impervious to economic and political headwinds. The Dow is already up 15% this year, despite a congressional battle over the federal deficit and a banking crisis in Cyprus that threatened a flare-up in the euro zone's continuing debt woes.

The USEconomy is healthy enough that recession isn’t a concern? Hey Slick, how about we pull out the trillion bucks and change a year that the government has to borrow and spend to keep this clambake going? How about we pull that out of GDP and see what the economy looks like? See any growth? That statement has to be somewhere in the top five foot-in-mouth comments of all time.

The fact that this sort of tripe passes for the crème de la crème of journalistic excellence is one of the main reasons Americans are so clueless about this brave new world we live in. Most have the gut feeling that something isn’t right, but then read an article like the one referenced here and shrug, having given it the college try, and go about what they were doing.

Not all Propaganda

Despite all the misdirection we’ve analyzed above, there is a key statement in there, which does have an awful lot of merit and that is the comment regarding the lack of alternatives. Stocks have outperformed pretty much every conventional asset so far this year – and for some time before that. Commodities, some of which represent a more honest means of storing wealth, have been trashed. During the recent rout of silver, JP Morgan was responsible for roughly 94% of the selling, almost all of it in the paper markets. And the list goes on. Bonds have been stagnant to slightly down, and for most investors, that concludes the list of asset class options: stocks, bonds, and commodities.

The bottom line is that wealth must be stored in something. It can be in cash, gold, silver, stocks, bonds, real estate, and any number of other assets. While there is nothing wrong with putting some of that wealth into stocks, it must not be done blindly. It is the financial equivalent of putting your head into the lion’s mouth. Can you get it out fast enough when the jaws start closing? The people in Cyprus found out the hard way.

It is increasingly my opinion that this is nothing more than a giant trap. All one has to do is consider recent developments regarding the disposition of client assets in the case of brokerage failures, the re-classification of depositors to unsecured creditors and the biggest market rally in history and it is easy to conclude that the trap is being set for another massive consolidation of wealth. This one will rival that of the 1930s in scope and magnitude. The fact that we’re being given no quarter means this is going to be a big grab.

Euphoria and Complacency are Back

The two key components of any major top are euphoria and complacency. People get giddy as I said in the outset and, more dangerously, they begin to believe that the rally will never end and they let their guard down.

In the past few months, Fidelity Brokerage Services LLC, the retail brokerage business for the fund-management giant that has more than 14 million client accounts, said more money has been flowing into stocks and mutual funds.

"People's confidence is coming back," said Ram Subramaniam, president of Fidelity Brokerage Services, adding that the amount of client money that flowed into stocks last quarter is about two-thirds higher than it was a year ago.

Bill Brasuell, a 77-year-old retiree in Key West, Fla., said he has never felt better about the stock market. He recently let the last of the bonds in his portfolio mature, and has rolled the proceeds into stocks.

Note the above rather subtle implication that there are only two ways to ‘invest’ – stocks and bonds.

The investoriat is doing what it does best – buying the top. We can go back just a few short years and find the same kind of irrational exuberance – no credit to the lackey Greenspan – that we found in real estate. Or we can go back to 1999 and find the same ingredients surrounding tech stocks. We know how all that ended. This will be no different and once again a massive amount of wealth will have changed hands. It will be taken from those without the foresight to hang onto it and taken by those who are bold enough to lay their plans bare for the world to see and dare us to say it ain’t so.  Well, Jimmy Stewart is long gone, and I’m saying it ain’t so.

When the next big grab happens, many will have their fine friends in the mainstream to thank for misinforming them, but ultimately they can look in the mirror to find who is ultimately responsible for the poor stewardship and resulting loss of their wealth.

By Andy Sutton

http://www.my2centsonline.com

Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a member of Omicron Delta Epsilon International Honor Society in Economics. His firm, Sutton & Associates, LLC currently provides financial planning services to a growing book of clients using a conservative approach aimed at accumulating high quality, income producing assets while providing protection against a falling dollar. For more information visit www.suttonfinance.net

Andy Sutton Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History