"...most important ingredients for rising stocks prices are not corporate earnings and global economic growth. Instead, the key elements are interest rates, inflation and sentiment along with help from government fiscal and tax policy.
Right now... Inflation is low, interest rates are very low, governments around the world are pouring money into the economy and sentiment is still well below bull market peaks. Historically, analysts at independent BCA Research say, this is the environment in which stocks prices have done their best.
As long as a recovery remains anemic with lackluster job growth, it remains the subject of tender mercy by policymakers desperate to placate an unhappy electorate. And so it is weakness that keeps the government from withdrawing assistance by applying higher interest rates, raising taxes and halting loan support programs.
...remember that rocket launch out of March was fueled in part by the U.S. Federal Reserve’s announcement it would directly purchase $300 billion worth of U.S. Treasury debt through its Permanent Open Market Operations. Is it any coincidence that stocks are beginning to weaken as that initial allocation begins to run dry? According to my calculations, more than $276 billion has already been spent. At current spending rates, the remaining funds will only last another two weeks or so...
...If recovery is indeed drawn-out, this is paradoxically great news. It seems backwards, but a long, slow, U-shaped recovery is exactly what investors should want to see. The robust, V-shaped economic recovery that politicians seem to want would be the worst possible thing to occur....
...if you’ll allow me – the cynical capitalist – to express a point of view, it’s this: The more companies cut jobs, the more their expenses drop and the more their earnings (corporate profits) rise. The reason that unemployment persists long after recessions end is that companies become addicted to headcount reductions once they realize that the market always rewards cost-cutting. While policymakers and citizens complain that a reduction in workers will lead to a reduction in sales, the market persists in preferring the productivity gains of slimmed-down, more motivated labor forces..."
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