The current 7 month rally on Wall Street is unusual for a number of reasons, first and foremost being the lack of statistical relevance.
Fundamentals are the building blocks of an orderly market. The sanity of long term investing is based upon this principal.
Earnings and the P/E ratio(Price easnings ratio) historically give a focal point for evaluating a reasonable trading range for a companies stock.
This is not happening today. Most companies have improved their balance sheets by reducing overhead, shedding employees, and reducing inventory.
These factors are admirable ,as corporate America attempts to weather the perfect storm of a heavy recession, an ultra left wing economic policy, real unemployment over 17%, and an arguably ineffective policy of squandered stimulus and corporate bail outs.
Where is the speculative push originating, which has sent this market up over 50% from March lows.
The answer has to be hedge funds. institutional speculators, the investment bankers with their TARP money and access to treasury funding as newly accredited banks.
These Go Go managers have a different perspective on the rally.
If indeed the rally turns out to be real, and they miss it, their jobs and reputations are toast.
If the rally fizzles and fails, they are risking someone else’s money.
The risk reward is in favor of maintaining the speculative push.
The danger in this type of speculation is extreme.
Quick to jump into the rally, quick to jump out.
We saw a free fall market last Fall.
Let unemployment continue to increase.
Let the next round of Prime Adjustable Rate mortgages begin to default.
Let the commercial real estate market crash due to the flood of small and medium sized companies being forced to close.
The market will reverse and sink when the reality hits.
You have heard the phrase , sink like a rock.
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