Can the aging bull market withstand the deluge of downbeat data that came flooding in last week?
No, because the bull is already dead, according to Scott Bleier, founder of Create Capital. "We've been in a range-bound market since the beginning of the year," he notes. Bleier suggests that the two-year rally from the lows of March 2009, in which the U.S. indexes regained almost all the ground lost from the financial meltdown, was "artificial," based on stimulus and two rounds of quantitative easing.
As we start the month of June off with a wimper, the markets don't just need more Fed easing, but are actually praying for QE3, according to the newly minted Friend of Breakout. While none of the financial talking-head regulars have really said as much, Nesto and I gave Bleier our patented pushback on the idea. Bleier flinched not a whit, telling us that the trillions of dollars pushed into the market by the first QE's had inflated assets well beyond reality. Maybe no one's willing to say so, but without QE3 prices are going lower. And therein lies the rub. The "artificial" inflation of stocks and commodities along with them make an organic recovery all the more difficult.
The economy can't grow if no one can afford the inputs. Seems simple, which, as per the general rule of economics, makes it a reasonable theory.
Bleier isn't a permabull or bear but a self-styled permarealist. As such, wherever markets "should" be and whatever fair value is, a full-scale collapse is not in the cards from where Bleier is sitting. We've rallied, we've pulled back, and we'll rally again. In other words, we're range-bound. The only solution for the macro economy and sustainable stock market gains from here is time. Austerity isn't working in Europe, stimulus isn't working in the United States, and disguising lunatic central planning as capitalism is no longer working so well for China.
Time and a trading range leaves you with two choices: Stay fully invested and ride it out for another decade, or try to tweak your portfolio to grind out some profits where you can. Whichever you choose is entirely up to you, but rest assured, Breakout will be here trying to help keep you informed.
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