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Dow 17,000 is on the Wrong Side of History--"Market Watch"
July 8, 2014, 6:16 a.m. EDT
Dow 17,000 is on the wrong side of history
Opinion: Since 1929, stock-market rallies have had things in common that this one doesn’t
By David Weidner, MarketWatch
SAN FRANCISCO (MarketWatch) — Today’s bull market is the fourth biggest since the 1929 crash after stocks have nearly tripled since the financial-crisis low set in early 2009.
But more than any modern bull market, this one stands alone in that it’s squarely out of step with economic growth. It’s being driven higher by just a few wealthy participants and traders who have tacitly, perhaps even unknowingly, agreed to drive prices higher.
The main reason for that is two-fold.
First, low interest rates have made other investments unattractive. The 10-year U.S. Treasury BX:TMUBMUSD10Y -2.15% is yielding only 2.62%. Inflation is running at an annual rate of 2%. That makes corporate bonds, certificates of deposit (which yield less than T-bills) and other fixed-income products largely a losing proposition. Those who have been buying bonds have been doing so for safety.
Second, the investing public isn’t really buying stocks. A study by the Pew Research Center, published in May, found stock ownership by households is shrinking, at 45%, down from more than 65% in 2002. Even with the Dow Jones Industrial Average DJIA -0.70% reaching the 17,000 milestone, investors are leaving stock mutual funds, not buying them.
This series of circumstances is unique. Unlike central bankers’ response to the Great Depression, the Federal Reserve has embraced Keynesian economics and flooded the economy with dollars on a scale never seen before. The Fed’s balance sheet has more than quadrupled to $4.3 trillion since 2008.
In short, stocks have become more attractive not because of a surging economy or strengthening corporate profits, but because they are the last-place finishers in an ugly contest. That’s a significant difference with boom markets of the past.
First, low interest rates have made other investments unattractive. The 10-year U.S. Treasury BX:TMUBMUSD10Y -2.15% is yielding only 2.62%. Inflation is running at an annual rate of 2%. That makes corporate bonds, certificates of deposit (which yield less than T-bills) and other fixed-income products largely a losing proposition. Those who have been buying bonds have been doing so for safety.
Second, the investing public isn’t really buying stocks. A study by the Pew Research Center, published in May, found stock ownership by households is shrinking, at 45%, down from more than 65% in 2002. Even with the Dow Jones Industrial Average DJIA -0.70% reaching the 17,000 milestone, investors are leaving stock mutual funds, not buying them.
This series of circumstances is unique. Unlike central bankers’ response to the Great Depression, the Federal Reserve has embraced Keynesian economics and flooded the economy with dollars on a scale never seen before. The Fed’s balance sheet has more than quadrupled to $4.3 trillion since 2008.
In short, stocks have become more attractive not because of a surging economy or strengthening corporate profits, but because they are the last-place finishers in an ugly contest. That’s a significant difference with boom markets of the past.
-------------------snip
In all of those periods, the market reflected strong economic trends: solid growth, high or strengthening employment and stable inflation. Only the latter is present today. The unemployment rate is improving, but it’s still a relatively high 6.1%. The best GDP rate produced since the financial crisis was 2.8%. That was in 2012, before the current bull market really took off.
Perhaps, as some suggest, this is a new normal. If so, it represents a disconnect between economic reality and market valuation. More likely, it’s a warped market distorted by the extraordinary measures used to create an economic lift.
MORE AT:
http://www.marketwatch.com/story/dow-17000-is-on-the-wrong-side-of-history-2014-07-08?link=MW_popular
6 replies
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Since the 99% have little money...one hopes the next CRASH will be limited to the 1%...but then they like to blame us little people for everything...so it will be our Pensions (if anyone has one) and Social Security that PAY for the next Crash and Privatization of MORE of our "Formerly Public" resources.
Well....it's good to prepare...but that's sooooo far away for most of them who have all the money...why should anyone worry? It's not about THEM...but, those they wish to steal from to support their lifestyles.
