Apparently, we now have to look across the sea to Japan to find the source of the latest even greater fool driving this current stage of unsustainable bubble demand for equities. I still remember when Japan was awash with cash and gobbling up everything in sight in this country in the 1980’s. The theory was that they would soon just buy up all of the U.S. real estate market. In fact, what they did was buy at the peak. Within a few years, their markets crashed and so did the Japanese juggernaut which has mired in despair ever since.
Stocks in Asia and Europe gained slightly to start the week. In the U.S. they gained 0.6% on low volume. Tuesday, stocks in Asia rose slightly, stocks in Europe closed flat, and those in the U.S. rose 0.4% on low volume. The VXO dropped over 5% to close at 12.22. Wednesday, stocks exploded upward—in Asia 0.8%, in Europe 1.8%, and 1.1% in the U.S on low volume. The VXO dropped nearly 4% more to close at the unsustainable level of 11.78.
The reason for the enthusiasm remains a bit of a mystery. The excuse was that the FOMC notes released yesterday by “mistake” evidenced an improving economy but the strong likelihood of quantitative easing continuing at the present rate at least through the end of this year. The story has it that this ignited the risk-on sentiment around the world. I still go for the “greater fool theory.”
Thursday, stocks in Asia continued yesterday’s euphoria, climbing 1.8%. Europe joined in, gaining 0.6%, followed by the U.S. climbing 0.5% on low volume. Here’s a good article that reports on President Obama’s budget. I recall hearing someone on the radio state that $3 million could “throw off” $205K. Now I know where that came from.
Friday, the feeding frenzy subsided with stocks in Asia pulling back 0.3%, in Europe 0.9%, and in the U.S. 0.5% on low volume. Complacency however still reigns among “investors” with the VXO closing the week at the ridiculous 11.68 level. On the other hand, precious metals collapsed, loosing nearly 7% in one day.
For the week, stocks gained over 2% while the VXO fear gauge dropped 15%. Here’s another article that shows that the stock market rather than being a “leading indicator” is no indicator at all relating to reality. With the stock market boost associated with IRA funding ending Monday, it will be interesting to see how long stocks can continue this relentless climb before coming down to earth.