Several
factors, none of them performance related, will contribute to this
"rocket" effect. The major contributor and the long-time unadvertised
target
of the Fed's actions, is the trillions of dollars (allegedly malinvested) in
money market accounts or short-term treasuries. Further Fed cuts will make
both impractical as preservation of capital loci, much less investment
alternatives. Were worldwide financial markets in their generally
asymmetrical condition of economic development such a course would fail.
However, with a few minor exceptions, all the world's major markets are
poised at the edge of possible disaster. So the major central banks, if not
through design then through self-interest, are determined to foster policies
that force this idle capital into the market place...in either the form of
investment or consumption.
The second contributing factor will be the shorts who have given financial
developments their typical gimlet-eyed appraisal, found nothing positive,
and have bet accordingly. That they "should" be right will be of
little
consequence (Kansas should have beaten Syracuse); they will be mauled as
these trillions of latent dollars move off the sidelines.
Finally, there are the numerous still-cash-heavy hedgies and
not-inconsequential number of mo-mo players who will provide the final
boost. Should this boost have any duration, I would also expect a large
number of boomers who have become less aggressive in their 401k allocations to
come
back strongly in hopes of resurrecting those early-retirement aspirations.
Their numbers could well be fortified by serial-refinancing home owners who,
with still lower rates, might well use some of their cash-outs for
investment rather than consumption or paying down debt.
Alternate investments (gold, oil, collectibles, etc.) are proving to be
(temporarily?) capricious and unrewarding...not to mention embracing them
denotes a Luddite mentality, old heartedness, and political incorrectness.
Nor
must we overlook America's fascinating demand for instant gratification,
especially as it pertains to wealth accumulation. A raging bull market is
the best of all possible worlds and it's a game in which everyone wants to
participate. Jesse Livermore's admonition to be patient with positions felt
to be correct are heeded only by the buy-and-hold crowd, who are universally
mocked for their short-sightedness. This is an interesting disconnect: those
who bullishly hold on are viewed with contempt; those who bearishly sell
what they do not own are also viewed with contempt.
For
the present, the bulls appear to have the upper hand and will play it
for all it's worth, and that could be a lot. Just two notes of caution.
First, this whole scenario hangs by a thread; one major exogenous event will
knock it into a cocked hat. Second, although it's tempting to get in the
middle of this bullish stampede, I would advise staying on the edges,
keeping the Exit between yourself and your favorite hedge fund manager.