It Doesn’t Matter Until it Does, and Other Witty Excuses…

As you undoubtedly know, the equity market has rallied in an uninterrupted fashion since December 20, 2011, for about 20 trading days. The uptrend is textbook and picture perfect without the wild swings experienced in months past.

Certainly the news is not great and headline risks remain almost every day. Volume is running 30% lower than this time last year. Commodity prices are rocketing higher without commensurate demand. Mostly everything that had been wrong with the fundamentals in the recent past remain wrong today, albeit with signs of “stabilization”.

So, why does the market rise almost every day?

Since we agreed to the latest trillion dollar ponzi scheme that fixes Europe, yields have plunged for everything. The answer is that there is simply no yield. Never mind currencies and other inter-market relationships. The only thing that matters is that there is no yield. Plus one other thing: China.

Between the plunge in Euro-yields and China back to stimulating a slowing economy, equities and commodities have nowhere to go but up. There are no sellers. This is why shorts are busy covering and short interest is at multi-year lows.  

Never mind that we are into major techinical resistance. Never mind that many bankers, from the buy side to the sell side, are warning about the current economic situation. There is simply nowhere to put all that money sitting in the closed ZIRP loop.

This unbearably enjoyable phase ends with a big volume, blow-off spike higher or the weight of dissapointments and downgrades. There may be near record low quantified bearishness but many are on the sidelines and out of the game so the majority can actually be “right”.