What skeptics of the Bull market have failed to realize over the past 5-years is that the Federal Reserve has turned the stock market upside down, making bad economic news a reason to buy stocks, and good economic news a reason to sell them. The distortion keeps the real value of assets obscure and stuck in the “Twilight Zone.” The answer to this bizarre market behavior is simple: the stock market is being ruled by the Fed, not by fundamentals. In simple terms, what matters to the stock market is the easy money from the Fed, not the performance of the companies whose stocks they are buying and selling.
Indeed, the Bank of International Settlements (BIS) warned a year ago, on June 6th, 2013, “the equity markets are under the spell of monetary easing policies that have enabled market participants to “tune out signs of a global growth slowdown.” Investors are able to shrug off weak economic data and instead, continue to bid stock prices higher, “amid the prospect of further central bank stimulus. Abundant liquidity and low volatility fostered an environment favoring risk-taking and carry trade activity,” the BIS observed.
Under the cloak of “Infinity QE” – the Fed injected $1.5-trillion into the coffers of its agents on Wall Street, which in turn, was funneled into the stock market, and inflated the market value of NYSE and Nasdaq listed stocks by $6.5-trillion to a record $25-trillion today. Since the Fed fist launched QE in Sept ’08, the central bank has increased its portfolio of bonds by $3.45-trillion, while the value of US-listed shares has increased $15-trillion. In other words, for every $1 of QE, the Fed increased the wealth of shareholders by $4.35. Last year, every bit of news that did not fit the Bullish narrative was downplayed and soon forgotten.
Analysts estimate that 40% of the increase in the earnings per share of S&P-500 companies in the past 12-months was due to the “financial engineering” of corporate treasurers.
I fail to see Yahoo bulletin board enforcement.. anywhere. Their revamp would suggest that all their former personnel ended up in the administration of the White House. Perhaps I'm being too critical.. OR not!