Stock Market Soars in Second Day Yellen Rally
Yes, as previously mentioned, Wall Street certainly has rejoiced at the appointment of Janet Yellen as Federal Reserve Chairman. The Dow shot up 323.09 points yesterday finishing firmly in 15,000+ territory after breaching that level to the downside. So what do we make of this?
For one thing, it may not necessarily indicate that the long-in-the-tooth bull market has gained renewed strength. Prices rose without a significant increase volume. This takes some shine off the increase in price. Also, real bull market rises usually consist of small, unheralded increases, not big jumps like this one. Big jumps are more characteristic of counter-trend rises in bear markets. They typically trigger short-covering, as those trying to make money in declining markets get caught with their pants - actually their shorts (get it?) - down.
So now that the Dow is back above 15,000, we look to see if it holds up. One sign that it might is the dramatic drop in the VIX. It had breached the "red flag" level of 20 only briefly, so if it stays below 20, that should signal that experienced traders aren't expecting increased volatility in the near term.
Yes, even before taking her place at the helm, Yellen appears to be able to goose the markets simply by her "dovish" or loose money reputation. She'll be looking to drive down unemployment via classic Keynesian methods of loose monetary policy, with perhaps coordinated efforts by the government via fiscal policy - that is, if the federal government can ever get their debt ceiling increase. The one-two punch may add another leg to this liquidity induced spike in stocks.
The real question, however, remains what happens after the initial spike. Bernanke's "QE" injections managed to create spikes, but nothing lasting that "jump-started" the economy. Now it's Yellen's turn to prove Keynesian theory right by pumping, spiking and - with fingers crossed - hoping the economy wakes up and takes off on a sustained run back to prosperity. That's their theory - one that so far hasn't proven out, but one they firmly believe will, if only enough "stimulus" is applied.
Applying our reason, we'd have to say that past efforts haven't worked so well, but future efforts may be different. Of course, we can also wonder what would make such similar efforts have a different effect. Will it be the sheer volume of continued efforts to stimulate? Is there any historical precendent of that? If so, I'm not aware of it.
So if you want to be cool and rational and wait and see whether this latest burst upwards signals a turn coming in the economy in the near future, that's not completely unreasonable. You would more or less be taking a "give it the benefit of the doubt" stance. OK. Fair enough. Just don't hold your breath.
For one thing, it may not necessarily indicate that the long-in-the-tooth bull market has gained renewed strength. Prices rose without a significant increase volume. This takes some shine off the increase in price. Also, real bull market rises usually consist of small, unheralded increases, not big jumps like this one. Big jumps are more characteristic of counter-trend rises in bear markets. They typically trigger short-covering, as those trying to make money in declining markets get caught with their pants - actually their shorts (get it?) - down.
So now that the Dow is back above 15,000, we look to see if it holds up. One sign that it might is the dramatic drop in the VIX. It had breached the "red flag" level of 20 only briefly, so if it stays below 20, that should signal that experienced traders aren't expecting increased volatility in the near term.
Yes, even before taking her place at the helm, Yellen appears to be able to goose the markets simply by her "dovish" or loose money reputation. She'll be looking to drive down unemployment via classic Keynesian methods of loose monetary policy, with perhaps coordinated efforts by the government via fiscal policy - that is, if the federal government can ever get their debt ceiling increase. The one-two punch may add another leg to this liquidity induced spike in stocks.
The real question, however, remains what happens after the initial spike. Bernanke's "QE" injections managed to create spikes, but nothing lasting that "jump-started" the economy. Now it's Yellen's turn to prove Keynesian theory right by pumping, spiking and - with fingers crossed - hoping the economy wakes up and takes off on a sustained run back to prosperity. That's their theory - one that so far hasn't proven out, but one they firmly believe will, if only enough "stimulus" is applied.
Applying our reason, we'd have to say that past efforts haven't worked so well, but future efforts may be different. Of course, we can also wonder what would make such similar efforts have a different effect. Will it be the sheer volume of continued efforts to stimulate? Is there any historical precendent of that? If so, I'm not aware of it.
So if you want to be cool and rational and wait and see whether this latest burst upwards signals a turn coming in the economy in the near future, that's not completely unreasonable. You would more or less be taking a "give it the benefit of the doubt" stance. OK. Fair enough. Just don't hold your breath.
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