Thursday, April 11, 2013
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The only rational explanation for the market's gravity-defying
performance is the Fed. As long as investors remain convinced
that the Fed has their back, they want to be in stocks even if
fundamentals don't justify the market's recent performance. Keep
in mind that it's not just the Fed; all the central banks of the
rich world are in on this 'game' together.
The Bank of Japan was a bit late to this party, but they have
more than made up for that with the size and scope of their
program. And the Japanese 'stimulus' is having impact far beyond
that nation's borders, including in Europe and in the U.S. As a
result, yields on European government bonds, including of
peripheral nations, have been coming down in recent days despite
the Cyprus scare and concerns about Portugal. The same trend is
playing out in the U.S. treasuries, with yields firmly back under
the 2% level.
Fighting this global central bank cartel has proven to be a
losing proposition for investors. The question is how long this
party will last? Central banks used to be the mature adults in
the room who would take away the punch bowl when the party got
too noisy. They don't seem willing to play that role at present.
But it is exactly a role along those lines that will determine
the future of the market rally.
Investors are saying through their trading actions that they
don't care about economic or earnings data as long as the Fed
remains on their side. That's why they shrugged last week's weak
economic data, discounted Wednesday's hawkish-looking Fed
minutes, and will likely celebrate this morning's positive
Jobless Claims numbers. This 'heads I win, tails you lose' will
remain in place as the current Fed stance remains in
Director of Research