Does Cheap Money lead to Cheap Assets ?
I only have a Masters in Economics, and it is a old one, so maybe the new Phd’s have learned something radically new. But if cheap money was the answer, why had the world not used this magical tool continuously for the past 100 years. Maybe because it leads to miss-pricing of assets and are the oil and commodity market telling this story currently.
Granted paper assets like stocks are a different story but eventually in my mind this whole thing catches up with itself. We now have the Central Bankers of the world climbing on the Santa Claus project so this has gone viral.
It feels like the market has a inkling of all this, but the perseverance of the stock market rally based on all the QE’s has gotten everyone in the ding-dong bell waiting mode. It is significant that weak volume on this current rally is not enough to trigger the old Granville On-Balance-Volume program into making new highs, the NASDAQ OBV high was on 12/3/14, the DOW OBV high on 12/26/14, and the S&P OBV high on 12/29/14.
T-Bond futures dropped down to the 143.78 area overnight, this completes the projected sell off and was about a 60 percent retracement of the rally from 137.75 on November 6, 2014. Now we are posturing for the rally to our final macro objective of 166.00.
The market has beaten our two Fund cumulative performance numbers for the last 10 trading days however leverage and market inflection going forward should provide a different picture.