The other day Rick Santelli used the word counterfeit to describe the gains in the stock market and any signs of growth/recovery in the economy (in the stats that have shown growth/recovery). Stuart Freeman from Wells Fargo who sees things more positively when he said in Barron’s that “Individuals are moving back into equities. It’s still very early.” The context being there is still room for a lot of upside in this now 49 month old rally.
The reason to express the age in months is that some time ago Barry Ritholtz pointed out that the average bull market lasts for 38-39 months.
Santelli is pointing what should be a perversion of how capitalism is supposed to work in that we have had bailouts and debt monetization but as yet there has been no catastrophic outcome. Freeman seems to be saying that there is no reason things should change as long as the Fed continues to buy $85 billion a month. It is a good question; why should anything change if the Fed is going to keep doing the same thing?
Maybe nothing will change and the S&P 500 will indeed go up to some crazy sounding target. What if what is now 125% in about four years turns out to be 225% in seven years?
This is not my baseline assumption because I do think there will be a consequence for how the Fed and Treasury has managed the last five or six years (not an apocalyptic consequence) but if it keeps going then we will continue to stay mostly long and mostly skeptical until the market shows signs of rolling over and any of the other bear market warnings I’ve written about in the past.