It doesn’t matter if the medicine (liquidity and debt) doesn’t fit the disease (gross miss-allocation of resources and insolvency). We’ll make it work!
Monday, stocks closed down 1.1% in Asia, flat in Europe, and down 0.5% in the U.S. on very low volume. Tuesday markets paused as they awaited the latest word from the U.S. politburo coming Wednesday. Asian stocks rose slightly while European and U.S. stocks closed unchanged on low volume. With Facebook approaching its offering price, IBM banging on the door of $200 per share, and margin debt at historic highs, it seems doubtful that the greater fool investment strategy can hold much longer.
Wednesday, stocks declined 0.6% in Asia, but in Europe they rose slightly and in the U.S. they were flat on low moderate volume as the FOMC decided to continue their counter-productive accommodation ploy with no hint of when they will terminate their bond buying program. Thursday, stocks in Asia rose 0.9%, in Europe 1.1%, and in the U.S. 1.3%. Party on! This likely related to the first-of-the-month buying shot. The 10-Year U.S. Treasury Bond rate again moved above 2.7% lending weight to the theory that the Fed is losing its grip on long-term rates.
Friday, stocks in Asia rose 0.7% and in Europe 0.3%. U.S. stocks rose slightly, but the VXO crashed 12% to close at an unsustainable 11.19. This VXO level combined with Facebook closing above its offering price, the S&P 500 Index setting a record above 1700, rising Treasury rates, and P/E’s above 20 looks like a big red flag that stock prices are very elevated. Buyer beware.