Anecdotes vs. the Fed

As the S&P 500 Index nears its all time high of 1,565, anecdotal evidence of an imminent top keeps piling up.   This past weekend, the front page of the New York Times had an article on small investors getting back into the market.  CNBC has their little bugs in the bottom right of the screen with how many points to go to the all time high.  It is hard to find a bear on the major financial news outlets.  Bill Gross, Dan Fuss and Jeffrey Gundlach are moving into equity management.  (Okay maybe not this last one, since they are all smart guys and after all how much more can you squeeze out of bonds with the ten year Treasury around 2%?  But the others definitely qualify.)

Against this stands the Fed and many of the other central banks of the world.  By nailing short term rates to zero and doing their best to keep the rest of the yield curve as close as possible, they have been trying to force investors out on the risk curve.  As the Ned Davis chart below shows, it appears that they are finally succeeding.  After years of outflows, equity funds have experienced large inflows so far this year.

 

Source: Ned Davis Research

While there are many reasons that the market should not go up, it continues to defy the skeptics.  The main reason appears to be the unrelenting liquidity supplied by the Fed and now supplemented by individual investors.  It is apt that this week surfer Garrett McNamara possibly broke his own record by riding a an approximate 100 foot (30 meter) wave.

Source: Guardian



In many ways, staying invested in this market is similar.  Both are powered by huge amounts of liquidity, can take you a lot further than you think, it is an exhilarating ride, and can end either in glory or disaster. 

"You can't stop the waves, but you can learn to surf"
John Kabat-Zinn

 Learn to surf (investments).