Proof that Stocks Are “Bubble-icious”

“The degree to which this market is dependent on continued Fed easing was demonstrated just last week when rumors of a Jon Hilsenrath article on the Fed’s exit strategy knocked the market down nearly 100 points in a matter of minutes Thursday afternoon. Hilsenrath is known — or at least believed — to be the Fed’s unofficial mouth piece at the Wall Street Journal so when he writes, Wall Street listens. When the article failed to materialize Friday morning, traders apparently took that as the all clear and the market recovered back to near its weekly high.”

–“Happy Mother’s Day, Mr. Bernanke“; Alhambra Investment Partners (May 12, 2013)

Unless you’ve been in a cave lately, you’re likely aware that stocks — and bonds — are both making record highs.

mysteryThe question is “why?”

One camp posits that corporations are posting record earnings, dividends are on the rise, and even if they weren’t, bonds don’t pay anything, anyways, thanks to the Fed’s policy of zero percent interest rates (“ZIRP”).

Then there’s camp #2, which notes that all of the foregoing is occurring against a backdrop of anemic economic growth and stagnant hiring, even as the Fed undertakes unprecedented monetary stimulus (most notably Quantitative Easing).

Paging (Texting?) Jon Hilsenrath

Which is where Wall Street Journal reporter Jon Hilsenrath comes in.

Apparently, when the Fed wants to communicate something to the market these days, it leaks that info through Hilsenrath.

Or, at least Wall Street thinks it does, which is effectively the same thing.

In a “normal” market, you’d expect stock prices to be driven by corporate and general economic news.

However, in a Fed-driven market, all that matters is what the Fed is — or isn’t — going to do next.

A 100 point drop last Thursday based on rumors of a possible story by an obscure journalist tells me that all eyes are on the Fed.

And little else.

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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