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Stock Market Partying Like the Great Gatsby?

Stock-Markets / Stock Markets 2013 May 30, 2013 - 12:20 PM GMT

By: InvestmentContrarian


George Leong writes: Wall Street reclaimed its merry ways on Tuesday as the Dow surged over 200 points in the first hour of trading, while strong small-cap buying pushed the Russell 2000 up over two percent to above the 1,000 level for the fourth time since its initial break on May 20.

All I can say, folks, is enjoy the stock market ride.

The Federal Reserve has created this investing utopia by funneling money into the economic system, even as the economy improves. The benefactor is the stock market.

People are clearly becoming less pessimistic, though. The consumer confidence reading by the Conference Board showed consumers now feel more confident about the economy than they ever have since February 2008. The reading of 76.2 in May easily outmatched the estimate of 72.5 and the 68.1 reading in April. Consumer confidence has improved for two straight months.

Clearly, America appears to have pushed aside the effects of the fiscal cliff and sequestration, such as higher taxes and cuts in the national budget.

In fact, it seems like pre-recession times again. Everyone is happy and making money, while the stock market continues to edge upward, reaching new record-highs after new record-highs.

Consumers are spending everywhere. Durable goods orders surged 3.3% in April; they were up 1.3% excluding the transportation element. These readings were well above the March readings and the estimates that called for declines in April. When consumers spend on non-essential goods, it suggests confidence in the economy and that helps the stock market.

The housing sector also continues to be sizzling. Home prices in the top-20 housing markets nationwide surged 10.9% in March, according to the S&P/Case-Shiller Home Price Index. It was the 14th straight up month for prices and the highest in six years.

As I have said in my previous commentary for Investment Contrarians, the money printing by the Fed and central banks around the world will continue to drive an artificial global economy and stock market.

While the mounting debt levels and the vulnerability to higher interest rates down the road are valid, you cannot fight the trend of the stock market, and that trend remains firmly higher.

There is clearly some froth developing in the stock market, as there is a growing disconnect forming between the actual condition of the economy and the upward trajectory of stocks.

Yet while I continue to be concerned about the mounting debt and the inability of the government to deal with the debt limit and sequestration, you cannot ignore the gains made by the stock market.

All you have to do is to take a look at the crazy valuation of Tesla Motors, Inc. (NASDAQ/TSLA), a maker of higher-end electric-powered cars, to understand that there is clearly some irrational behavior in the markets. Currently valued at $106.81, Tesla is up a staggering 93% in May and 316% from its 52-week low of $25.52 on August 2, 2012. With a market-cap of $11.8 billion, Tesla expects to sell just over 20,000 vehicles this year versus millions for the top automakers. Again, the irrational behavior here is clear.

The current market may not be as euphoric and irrational as it was in late 1999 and early 2000, but you really need to step back and take a look.


By George Leong, BA, B. Comm.

Investment Contrarians is our daily financial e-letter dedicated to helping investors make money by going against the “herd mentality.”

George Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. See George Leong Article Archives

Copyright © 2013 Investment Contrarians- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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