but why is now any different that 3 years ago? Seems to me like we've got a long way to run....until rates start increasing the artificial valuations will continue
I don't see anything more than a slight correction coming here--barring a "black swan" type event. If there is more economic weakness that just means the Fed is going to continue pumping and put the hawkish members to bed.
The fake "market" pretty much wants to hear this! Certainty about the continuation of QEs. It also provides an opportunity for bears to pile on thinking this is going to be the beginning of "THE REALLY BAD ENDING" to all of this that will most certainly come--ONE DAY. I just don't think that day is on the horizon... but they will try to lay waste to cherry-picking bears and also weak-handed longs.
All this said, it is clear that each subsequent QE has been increasingly impotent as far as boosting the economy. At what point will more QE be completely ignored? If I knew the answer to that, I sure wouldn't be here.
the idea that higher interest rates bring stock prices down (especially when coming off 0%) is just wrong. There is no historical basis in that view. Generally stock prices rise as interest rates rise until the end of the cycle.
Of course, we're in such an unusual monetary and fiscal environment these days, for which there is no real precedent, I don't think anybody knows where confidence cracks to catalyze a severe market drop. It would have to be in Treasury bond or currency markets, IMO.
Japan and Europe are going to crash first, so we'll have plenty of warning. In the meantime, it is possible capital will flow to the US for flight of safety reasons, providing yet another perverse bulging reaction.
Incorrect-Interest rates rose in each instance before a major meltdown over the last 25 years. For example, interest rates moved significantly higher across the spectrum in the months leading up to October-1987. Then again in 1999 before the Q1-2000 top. In the 2007 top, the short-term portion of the curve rose significantly from 2003 while the long-term portion fell inverting the curve-clearest warning one can receive. Only 1994 did interest rates rise significantly and the equity markets failed to react to the downside.
Sentiment: Strong Sell
Even if I bought what you're saying, the part about "we'll have plenty of warning" is just wrong!
The rug will be pulled out only when nobody is expecting it. If these imbeciles hadn't made it so obvious that a market that goes virtually STRAIGHT UP--to the tune of nearly 150% in only 4 years--is NOT a normal market, they might've been able to sucker in a lot more money... instead, most of the money stayed on the sidelines and refuses to come in. They are just NOW realizing the role human psychology plays in economics and markets!
Unless you are being completely dishonest or are just insane, you cannot argue that this is the mother of all stock market bubbles.... as such, it will end the way all bubbles end, with a blowoff top!
If pension funds can meet pension obligations in fixed income, that is where they prefer to be. Ben holding rates artificially low is forcing fund managers to risk pension funds in the market to get a return. So yes, raising interest rates does lead to a rotation out of stocks.
You might be right but IMO rates won't increase until the economy is humming (which BTW might not happen for several more years due to this misguided fed policy)....then the crowds will focus less on QE and low rates and drink the happy days are here again koolaid.....there will be a transition period and when rates are anticipated to go artifically high to curb the excessive liquidity that's when it will be set for a crash. 10 year treasuries have a long way to go before even reaching their 7% mean......the initial interest rate increases or anticipation thereof will only cause a pause in equities.