Gary Dorsch | Jan 10, 2014 01:32AM ET
For the Nasdaq-100 Index, the Bull market turned five years old in November. Wall Street hopes the hard-charging Nasdaq Bull - that has more than tripled investors’ money since November 2008 is still in good enough shape to keep the gains coming in Year Six. Many Main Street investors are still wary of the “Least Loved” Bull market, - and they’ve missed out on the money minting rally. Since the turnaround began on March 9th, 2009, the S&P-500 index has chalked up gains of +175%, - ranking it as the fourth longest bull market of all-time. In cash terms, the US-stock market has generated $13.5-trillion in paper wealth.
In the past year alone, the market value of US-listed stocks increased by more than $4-trillion. On the flip side of the coin, the average bond fund suffered a loss of -5.7% last year, wiping out $2.4-trillion of wealth for US-bond holders. The sharp divergence between booming stock markets and slumping bond markets, - has been dubbed the “Great Rotation.” It’s been ongoing for the past 1-½ years. Only until the second half of 2013 did the small retail investor decide to jump abroad the “Great Rotation,” by yanking $193-billion out from bond mutual funds and plowing $175-billion into stock funds.
For market contrarians, the fact that Main Street investors are finally warming up to the high flying stock market in the fifth year of the Bull Run, is a warning sign to be on the lookout for a market top. On the flip side, Wall Street salesmen say the torrent of retail monies flowing into stocks is a Bullish signal, as it shows there is lots of fresh cash that’s still sitting on the sidelines, mostly parked in money market funds, that can fuel further market gains. Yet even the Perma-Bulls on Wall Street admit that a long awaited correction of -10% or more is looming sometime in 2014, albeit, beginning from higher levels. Therefore, a climactic rally for the S&P-500 index to the 2,000-level, for example, would fizzle out and begin a descent to today’s starting point, thus wiping the speculative froth out of the marketplace.
Stock market Bulls say the “Least Loved” rally is the real thing, and it has the potential to extend into a decade long Mega or “secular bull” market. They point out that the biggest buyers of stocks are the S&P-500 companies themselves. They’re generating around $1-trillion in profits each year, and hold about $2-trillion in cash. From late 2009 through all of 2013, the S&P-500 companies spent $1.5-trillion of their surplus cash, buying back their own company shares on the open market. Of course, companies sell stock too, but the net reduction from share buy-ins minus new offerings was an extraordinary $1-trillion in four years. Last year, stock acquired under buyback programs equaled 6.4% of the daily trading volume in the Russell-3000 Index through Sept 30th, exceeding 2007’s level of 4.1-percent.
Last year, the market value of the Nasdaq-100 index exhibited a +87% degree of correlation with the expansion in the MZM money supply. In the four years leading up to 2009, the correlation was just +36%. So while US-share markets were soaring to record highs, it became clear that the liquidity created by the central banks wasn’t flowing to where it is most needed, like business investment. Instead it followed the path of least resistance, ending up in the hands of speculators to bid up equity values.
And the higher the stock prices climb, the more enthusiastic Corporate CEO’s and directors become for buying back the company’s shares and so on, thus inflating the share price upon which their stock option plans are based. A lot of what’s called investment these days is just a transfer of cash to shareholders at ever-inflating prices. The Fed’s QE scheme did strengthen the demand for Tiffany bags and Ferraris and fine wines and equities, but the “trickle down” effect to the struggling masses was too small to boost the stagnant wages of the working class. Instead, the Fed’s QE-scheme has simply widened the schism of wealth inequality in America. This is so, since 10% of the US-households own 82% of the listed shares.
During the course of 2013, there was a brief interruption in the Nasdaq’-100’s parabolic ascent. There was a pullback of -7.3% in the May–June timeframe, when Fed chief Ben Bernanke shocked the markets, saying the central bank would soon begin to reduce the size of its money injections. Bernanke tried the calm shareholders, saying “Tapering” of QE is not the same as “Tightening.” He pledged to keep the federal funds rate locked at 0.25% for as far as the eye could see. As such, the Nasdaq-100 index quickly regained its footing and zoomed +27% higher in the second half of 2013.
On Dec 18th, the Fed said it would begin tapering its QE injections, starting with a modest reduction of $10-billion per month in January to $75-billion. Again, despite the Fed’s alert, the stock Bulls were unfazed, and continued bid-up the share prices of high flyers such as Amazon, Google, Price-Line, MasterCard, Visa, and Boston Beer.
Soon after taking office in Dec ‘12, Japan’s Prime Minister Shinzo Abe promised to end the 15-year bout with deflation and pull the world’s third largest economy out of a recession. Firing the first arrow of “Abenomics” – the BoJ began to unleash a sharp devaluation of the Japanese yen against the currencies of its major trading partners. On April 4th, 2013, the BoJ vowed to double the amount of Japanese yen in circulation to ¥270-trillion, within a time span of just 2-years. “The BoJ’s policy steps could indirectly result in a weaker yen and boost share prices, helping to lift corporate earnings,” Abe declared.
Tokyo got the green light from its Group-of-20 peers at a Feb ‘13 meeting in Moscow for its aggressive plans to weaken the yen. With liquidity injections of ¥7-trillion per month, Tokyo has engineered the yen’s -18% devaluation against the US$, -23% against the Euro, -15% against the Korean won, and a -12% slide against the Chinese yuan. For Nissan Motor, which gets 80% of its revenue outside of its home market, whenever the US-dollar’s value rises by 1-yen, it boosts its operating income by ¥15-billion ($151-million). Sony and Honda Motor get more than 65% of sales outside Japan, and also profit from a weaker yen. As a result, profit for Japanese companies listed on the broader Topix index increased to ¥74.70 /share last year, up from ¥50.29 in 2012, and ¥38.05 in 2011. The $4.3-trillion Topix index posted a +49% advance last year, - its best annual gain since 1999.
Alongside the Euro’s +50% advance against the yen, - the German DAX-30 index catapulted an identical +50% higher (thanks to carry traders) to above the 9,500-level – it’s highest in history, and +15% above its 2007 high. The powerful DAX rally caught many analysts by surprise. After-all, exports are the mainstay of the blue-chip DAX companies that earn 75% of their revenue from outside the country. Yet during the first 10-months of 2013, German exports totaled €917-billion, a drop of -0.7% compared with a year earlier. The best that can be expected for 2013 as a whole, according to the Federation of German Wholesale, Foreign Trade and Services (BGA), is an increase of +1-percent. Still, despite flat export sales, Euro /yen carry traders still bid-up the DAX-30 index to the stratosphere.
There is a risk that the unwinding of the Fed’s QE-3 scheme could re-incarnate the bursting of the dot-com bubble of the 2000’s. As an added insurance policy, central bankers are hopeful the liquidity flowing from the “yen carry” trade could offset the negative impact on the Japanese and US-stock markets. “There’s a lot of uncertainty about how a monetary policy exit will occur with a very large balance sheet,” said New York Fed chief William Dudley on January 4th. “There’s no question that there could be unintended consequences.”
This article is just the Tip of the Iceberg of what’s available in the Global Money Trends newsletter. Global Money Trends filters important news and information into (1) bullet-point, easy to understand reports, (2) featuring “Inter-Market Technical Analysis,” with lots of charts displaying the dynamic inter-relationships between foreign currencies, commodities, interest rates, and the stock markets from a dozen key countries around the world, (3) charts of key economic statistics of foreign countries that move markets.
Disclaimer: SirChartsAlot.com’s analysis and insights are based upon data gathered by it from various sources believed to be reliable, complete and accurate. However, no guarantee is made by SirChartsAlot.com as to the reliability, completeness and accuracy of the data so analyzed. SirChartsAlot.com is in the business of gathering information, analyzing it and disseminating the analysis for informational and educational purposes only. SirChartsAlot.com attempts to analyze trends, not make recommendations. All statements and expressions are the opinion of SirChartsAlot.com and are not meant to be investment advice or solicitation or recommendation to establish market positions. Our opinions are subject to change without notice. SirChartsAlot.com strongly advises readers to conduct thorough research relevant to decisions and verify facts from various independent sources. Copyright © 2005-2013 SirChartsAlot, Inc. All rights reserved
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.