In my bi-weekly missives I usually discuss a topic germane to financial markets. This time around I’m going to throw you a curve ball and discuss the US housing market. We know the mortgage markets and housing itself were very much the locus of excess in the prior cycle and in very good part responsible for the actual economic and financial market downturn.
Regarding recent comments by Larry Summers on stimulating people to spend their money by charging them to hold money at the bank—that is, by charging negative interest rates—he said, in the next economic downturn, expect the Federal government to simply outlaw cash altogether.
The S&P 500 made another milestone this week by closing over 1800 for the first time. The Dow Jones Industrial Average also hit a milestone by closing over 16,000 to end the week at 16,064.80.
The most famous law of economics that everyone learns in Econ 101 is the law of supply and demand. Essentially, if there are more buyers than sellers then prices will go up until equilibrium is reached. Conversely, if there are more sellers than buyers prices will decline. The stock market is no different.
After runs in the market several people attempt to make a call on the top or bottom. To me that is a fool’s errand. The better use of our time is to determine what the market is actually doing and not to make predictions as to what it will do.
The markets broke out this week to new highs after consolidating since late October. The S&P 500 is now two points away from hitting 1800, the Dow Jones Industrial Average is closing in on 16K, and the NASDAQ close to hitting 4K.
Trying to find the rhyme and reason in the markets these days can cause a lot of investors to feel anxious. We continually face negative catalysts in the market — European Sovereign Debt Crisis, Fukushima, Flash Crash, Arab Spring, etc. — yet the market marches higher.
Markets are up over 8% since the October lows and as the market has vaulted higher so too have investor sentiment levels, which will have to be worked off at some point. As seen below, institutional active managers are the most bullish they have been since early 2013 with retail investors the most bullish they have been since early 2012.