To the Moon Alice

For the week, stocks tacked on another 2%. As we witness this relentless climb, I can’t help remembering the classic line from the Honeymooner’s TV show, “to the moon Alice.” Of course, eventually the euphoria will be replaced with fear, but for the moment, the momentum seems unstoppable. The S&P 500 has climbed over 1000 points and gained over 150% since its low in 2009. The Dow/Gold ratio has now climbed to over 11 — another indicator that things are getting a bit stretched. This is even more incredible when we consider that this happened during a secular bear market. We’re back to the syndrome good news is good and bad news is good. We’re yet to face reality, but the truth is, despite lies to the contrary, with each tick higher, the risk of market loss ticks higher also as honest valuations stretch further and further beyond reason.

The Fed tapering article rumored last Thursday was published after the market closed Friday. It apparently had little effect on stocks in Asia, which ended Monday just slightly higher. In Europe, they were slightly lower and in the U.S, they closed flat on low volume. VXO shot up over 7% to close at 12.47.  It’s interesting to note that Dr. John Hussman in his weekly commentary Closing Arguments: Nothing Further, Your Honor used a similar line of reasoning to debunk the QE fantasy that was highlighted here a few months ago.

In Asia Tuesday stocks dropped just slightly. Stocks in Europe jumped up 0.5% and in the U.S. 0.8% on low volume as precious metals dropped over another 1%. The Tuesday rally in the West followed through to stocks in Asia Wednesday where stock rose 0.5%, and the Nikkei 225 Index crossed 15,000 mark. Stocks in Europe followed suit, rising 0.7%. In the U.S. the rally continued with stocks tacking on another 0.4%. Precious metals and their mining stocks each fell about 4% to slide below the low made a month ago. It’s interesting to consider the chart on this. When they crashed 10% a month ago, they left a large gap in the chart. That gap was filled before the price proceeded downward to these present lows. Note this time, as a month ago, silver is in a fair value range, but gold still needs to come down closer to $1200 per ounce before it starts being attractive for buying.

On Thursday, stocks in Asia backed off 0.3%. In Europe they were unchanged. Stocks in the U.S. reversed course and dropped 0.7% on low moderate volume. The 10-Year U.S. Treasury Bond rate dropped 4% to close at 1.87. Friday, stocks in Asia closed unchanged and in Europe up slightly. In the U.S. though, it was a feeding frenzy for stocks which gained another 0.9% on moderate volume (a bit low though considering it was an options expiration day), while precious metals shed about 2.5% and their mining counterparts crashed about twice that amount. U.S. treasuries reversed the big rate drop of Thursday with a 4% move up.

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