The Fear of Being Left Behind
Worldwide equity markets were higher last night as the global rally, which began in mid-November and has been grinding higher in various fits and spurts, continues. As for stocks here, they were slightly higher, with no particular theme. (There hasn't been a theme, at least that I have been able to see, for some time, other than the desire to increase equity exposure).
It seems to me that some of this rally has been a consequence of so-called professional investors who must outperform their various benchmarks. A lot of people had set themselves up for the stock market to be under tremendous pressure in Q4 because of the federal budget showdown at the end of the year. Thus, when the world did not go over an imaginary "cliff" as 2012 ended and 2013 began, the market started to lift thanks to money printing, people removing defensive hedges, and others upping their exposure. That process has fed on itself, and it continues to do so, as folks are now terrified of being left behind.
Off to Lever-land
How long this will last is anyone's guess, but it could stretch out to near the end of Q1 if it is as mechanical as it appears to me that it might be. Money printing tends to force asset prices higher, and when the professional investment community is not set up for it, you have the type of action in equities that we have been seeing. In any case, some time in 2013 there may be quite an attractive opportunity on the short side, depending on how everything sets up. And, just as rising stock prices tend to create buyers, selling tends to create sellers, especially when the fundamentals are as dubious as they are these days.
Away from stocks, the dollar was weaker, as were bonds, oil was slightly higher, as were the metals. It is worth noting that after yesterday's weak performance and the breaking of so-called important technical levels, gold did not collapse further. It still may, but it is also possible that the break yesterday was just another testing of these lows. It may in fact turn out to be a head fake, though we won't know until we see what happens next.
About Bill Fleckenstein
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