At the risk of provoking a spat -
There's a gap in demand
Between equities and
The economy, which is still flat.
My friend Marc Leibowitz, an investment advisor with Oppenheimer & Co., circulated a post yesterday from Zero Hedge, which he says "perfectly expresses a number of concerns I’ve had for some time now." In the post, Lance Roberts of Street Talk Live poses the 5 Questions Every Market Bull Should Answer. To summarize, they are:
- Does the current level of employment support the current rise in asset prices?
- Does the current weakness in Personal Consumption Expenditures support the current rise in asset prices?
- Are very negative net export prices (i.e., falling export prices vs. rising import prices) supportive of the current market?
- How long can corporate profits remain diverged from weakening economic growth?
- What is the possibility of the divergence between rising margin debt and falling yields on junk bonds being maintained indefinitely?
In other words, although the Fed's QE stimulus has heretofore supported a bull market in equities and junk bonds, the foregoing pertinent questions suggest that the underlying economic strength needed to sustain such prices is lacking. As Guggenheim Partners CIO Scott Minerd tweeted this afternoon:
High yield below 5%? A lot of the economic data out there just doesn't support these lows, which indicates a near-term setback is possible.Nevertheless, the rally continues on the strength of further expectations of QE, weak data notwithstanding. All the stock indices were higher today, while gold continued to slump.
— Scott Minerd (@ScottMinerd) May 16, 2013