Monday, August 10, 2015

1999 Again?

I remember when David Tepper remarked at the end of 2014 that the market in 2015 could be like 1999.  While the market hasn't been as strong in 2015 like 1999, it has been up, in a choppy fashion, with poor breadth, like 1999.  The market is completely different now than it was back then, with ZIRP and a 10 year trading around 2.25%.  Back then, short term interest rates and the 10 year were both almost 6%.

Just based on monetary conditions, and the supply of money out there, you can say its a more bullish environment than in 1999.  It has been proven that monetary conditions are much more than economic conditions when it comes to short to intermediate term direction of equities.  If the Fed is as slow to raise interest rates as the market is pricing in, which I believe will be the case, then the S&P should go higher because supply and demand based on corporate buybacks and M&A are all tremendously bullish.  Add to that the low net positioning in US equities by hedge funds and tepid sentiment and you have recipe for a blowoff move higher into the end of the year and beginning of 2016.

Only if the Fed reacts to the blowoff move higher in equities by tightening faster than market expectations will you halt the rise.  Based on past history, the Fed is always late to the game when it comes to raising rates and they do not raise rates to respond to a bubble.  A bull market as long as the one we've had with the bullish supply and demand picture that we have is a combustible mix that can explode at any time into a parabolic rise.  Breadth doesn't matter as long as these corporate buybacks keep coming and you have loose monetary conditions.  Only the Fed can stop this growing monster, and I doubt that they will.

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