The Stock Market's Phony Rally

I would be remiss if I didn't take note that the "Dow" (DJIA)  now sits at 14,514.11. The broader S&P 500 closed Friday at 1560.70, about 5 points shy of the record set in October 9, 2007.

NEW YORK (Reuters) - The Dow Jones industrial average extended its winning streak to 10 days on Thursday, a string of gains last seen in late 1996, and ended at another record high as investors were encouraged by data showing the labor market's recovery was improving.

The S&P 500 took a late-day run at its record closing high of 1,565.15, but ended just 2 points away. The 30-stock Dow Jones industrial average has been setting record highs since last week, when it rallied on March 5 to initially surpass its previous lifetime closing peak set in October 2007.

U.S. equities have accelerated their run higher without a major consolidation since the start of the year, driven by improvement in the economy and the Federal Reserve's continuation of its easy monetary policy.

"It's simply a natural progression for prices to move to new highs in order for the market to advance. I don't think it's scaring investors," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

"Fund flows really have reversed direction, and money started moving out of money markets and some from fixed income to equities. This kind of trend doesn't change easily so we can expect a lot more to come in."

This new rally in stocks doesn't so much reflect an economy on the mend as it does the Fed's "easy money policy." This goes without saying in 2013, several years after the previous phony peak and subsequent meltdown.

As Yale economist Robert Shiller notes, TIPS bonds (inflation-protected treasuries) have negative yields (interest rates < 0), so the Big Money Boys are chasing yield in the riskier stock market, which is exactly what Benny and The Jets want them to do. Renegade economist Steve Keen, who is tracking the strong correlation between stock prices and margin debt, says the stock market is definitely in a bubble. The more conservative Shiller says the stock market is "bubbly" and still subject to wild swings in the shorter term (a few years out).

When a once great society is on the way down, this is precisely the kind of phoniness we expect to see. The stock market has not seen such a string of consecutive gains—10 days straight as of last Thursday— since 1996, which is very close to where I place the beginning of the Bubble Era (1995-2007). That was 17 years ago, which in human terms, is a long, long time. The "organic core" of the economy—the natural tendency toward growth—was replaced by gambling and unwarranted asset price inflation in the now distant past.

Seventeen years is more than enough time for humans to get used to aberrant conditions in the markets, dislocations which have been, for the most part, created by Fed monetary policy. In 2013, no matter how strong these market distortions are, people will continue to believe that abnormal is normal. That's just how humans work; there's nothing to be done about it.

Thus we will continue to see rampant speculation about whether the phony stock market rally can last. So-called "retail (Mom & Pop) investors" will be urged take their meager savings and jump into the market. Bubble promoters will deny there's a bubble. Some ordinary investors will try to catch the rally near the top and get taken for a long ride downhill. Electronic (algorithmic)  traders will continue to manipulate stock values and squeeze tiny fractions of a penny from millions of trades each day. Robert Shiller will continue to be wishy-washy. Steve Keen will say it's definitely a bubble. Everybody will be smiling on CNBC.

On and on the game goes,and where it stops, nobody knows.

Bonus Video — Missouri Boat Ride

 

Comments

[Oliver]

"There is such a thing in this country called justice."

Justice, died [unknown]. RIP.

[gretchen]

It's jsut remarkable to me that the engine is so hot again and based on what? What possible good news or any real reason is it running so high again? Manufacturing and jobs are nonexistent, no one is really spending, those guys are just chasing their tails trying to make a dime off a bet that the country goes down is all I can figure. Not much more time left. When it swings high/low/high so erratically and without clear reason, something very bad is going to happen.

[Ben]

We're just flat out fucked, aren't we?

[Alexander Ač]

Dave,

well yes:

"Robert Shiller will continue to be wishy-washy. Steve Keen will say it's definitely a bubble. Everybody will be smiling on CNBC." -- and arctic sea ice will continue to crack:

http://neven1.typepad.com/blog/2013/03/crack-is-bad-for-you-and-sea-ice.html#more - but who cares, seriously?

Cheers,

Alex

[Alexander Ač]

For those interested as Dave wrote recently, here is the 20 000 years of global warming hockey stick - Marcott+Shakun by dutch blogger:

http://klimaatverandering.files.wordpress.com/2013/03/shakun_marcott_hadcrut4_a1b.png

Cheers,

Alexander

[John D]

I think people's innate belief in the myth of perpetual growth and the oscillating upward curve of the stock market is so strong that they overlook little details like facts. They're brains are wired differently.

[SonyAD]

It's all fiction and fraud.

If they stop printing new money then they can still charge rent on the money already in circulation, all the money in existence.

If they continue to print money they can continue to outright steal purchasing power through sequestered inflation (consistent record profits year on end are a sure sign of sequestered inflation).

They basically print their own future profits each time they extend a loan.

Our monetary system is thinly disguised serfdom.

Meanwhile, the clueless right wingers are worried shitless about the debt ceiling.

As if the debts meant anything, anything at all.

As if all the debts to the banks aren't onerous and fictitious.

As if they can't be all wiped out at the stroke of a pen or the debt be transferred to the government with the interest annulled.

The whole system is predicated on the lie that the same money can exist in two places at once, both in the depositors' and the debtors' (or the seller they bought from's) account. That is how they brainwash the masses of morons from childhood on to accept legal counterfeiting of electronic money or a rent on all money in circulation.

Never follow through. Never ask or think about maturity mismatch.

Just believe in the "free markets".

When it's really all just make believe.

Nothing whatsoever to do with the real economy or real value.

They've succeeded in making money meaningless and pointless as money.