Stocks are basically flat this morning as traders around the world wake up wondering what in the name of Bill Cosby the ECB dumped in the punch bowl with QE Europe. In case you missed it the S&P 500 (^GSPC) tacked on 1.5% after ECB President Mario Draghi announced that the central bank would be buying €60 billion euros a month of bond securities until September 2016. At the moment that equates to $1.2 trillion in U.S. dollars but with the way the euro is collapsing that number seems likely to go lower before the punch bowl is removed.
Stocks are now almost exactly flat for the year despite the worst earnings since the third quarter of 2012. If that seems somehow impossible it's likely because we've gotten to flat the hard way. Last Friday we were riding a five day losing streak. If stocks rise today it'll be five days in a row of gains. Investors are uncertain but they're certainly aggressive about it. The Average True Range for stocks, simply a measure of how much stocks are moving on a daily basis, is now 28. In simple terms that means yesterday's 1.5% change was just about normal for 2015 so far. That average has doubled since last year and risen more than 45% in the last three weeks.
The global theme of the year so far is deflation. Whether it's footballs in New England, Tom Brady's reputation or consumer prices everything except stocks is in some way deflating. Listen.... you can actually hear hissing if you listen closely.
This deflation is a boon for consumers but it scares the living crap out of central bankers. The government knows how to give away money but it can't make people spend it. As Draghi himself said yesterday "for growth to pick up you need investments, for investments you need confidence and for confidence you need structural reform".
Suffice to say reform is the rarest of institutional beasts whether you're talking about Washington D.C., Frankfurt or NFL Headquarters. That leaves us right where we started: football and stocks are at record highs pretty much solely because we've got nothing else to watch and no where else to put our money. That's a lousy long-term investment thesis but it's been good enough for six years and it certainly worked this week.
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