“A Historic Bull Market”

The US is in the midst of one (Bloomberg)

It’s another piece talking about this “most hated bull market of all time”. So many bull wiseguys highlight this while soft shoeing the real reason that the bull market began in the first place; unprecedented, off the charts and down the rabbit hole monetary policy that has reacted desperately at every turn to prevent any decent correction from morphing into a bear market. A bear market simply will not do when an economy and the markets that spring from it are so leveraged. This article does however, freely note the desperation…

The Federal Reserve and other central banks have shown time and again that they stand ready to inject more cash into the financial system at the first sign of market turbulence.

Yet this commentator plays it straight with the old line about fearful investors, conveniently leaving out the origins or ‘stimuli’ of this market…

“I don’t remember another post-war bull market that was this fearful, chronically and persistently,” said Jim Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management Inc., which oversees $337 billion. Investors are “forever prepared for the end of the world, but reluctantly being dragged back into to equities.”

Many people comp the market to previous bull markets in a sanitized way, omitting the unprecedented policy part. I realize that manipulative monetary policy has been a factor to one degree or another since the Fed was created but this time, with QE’s 1, 2 & 3 behind us and the brilliantly crafted Operation Twist, the macro was altered wonderfully to the bull market’s liking. There is little underlying economic strength to support valuations and it is all about policy.  Just maybe the market is suspect because a critical mass of people are now not so stupid as to ignore the policy parlor tricks.

Here’s Bloomberg’s chart illustrating what we have noted for years, a market in lockstep with policy (Fed’s balance sheet). Very clearly balance sheet expansion was implemented first, then the S&P 500 bottomed and then corporate profits turned up. For years the whole kit and caboodle has risen together.

sp500, stock market and fed policy

The Fed then terminated QE3, corporate profits began to ease and the stock market started to roll.

This dials us right up to the present time when bear forecasters are extrapolating a bear market that will come if current dynamics all remain in play as the Fed does its ongoing Kabuki Dance about whether or not to boost rates from a pathetic 1/4 point to a measly 1/2 point. It looks to me like the market is either forecasting a surprise round of QE or is going to fail miserably from this last chance power drive.

As Mr. Kuroda made clear over night, US and global policy makers have turned us all into casino patrons, not investors.  Where once the primary objectives were to determine macro trends, economic growth/contraction and which investments would stand to benefit, we now must add a ‘will they or won’t they?’ guessing game component to the mix where policy is concerned.

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