There are at least 6 theories about why the stock market has rallied some 70% off its lows a year ago, even though nothing has been done to actually address the root causes of the financial crisis.
What The Dumb Money Believes
The dumb money believes what CNBC and their trusty stock churner ... er, broker ... says: that the government has fixed the economy but it just has to "kick in" (and that unemployment is just a lagging indicator, nothing important. See this, this, this andthis).
Therefore, these folks believe that stocks are hugely undervalued, and that if they buy while most people are still afraid, they'll make a killing when the market goes to the moon.
Temporary Juice
Others believe that it is the quantitative easing, low rates, bank bailouts, stimulus spending, and other portions of the "wall of money" which the feds have thrown at the economy are creating a temporary pump to the stock market.
But they think that - when the spigot is turned off - the market will tank.
But they think that - when the spigot is turned off - the market will tank.
The Situation is Inflation
Others believe that - regardless of continued loose monetary and fiscal policy or real stock valuations, we're in for some serious inflation.
Stocks tend to preform well during inflationary periods.
For more on inflation versus deflation, see this.
Stocks tend to preform well during inflationary periods.
For more on inflation versus deflation, see this.
Machines Run Amok
Tyler Durden explains that all of the stock market gains have occurred after hours when mystery buyers purchase stock futures in low volume environments (and seethis).
Vincent Deluard - a strategist for TrimTabs Investment Research (25% of the top 50 hedge funds in the world use TrimTabs' research for market timing) - said last month:
Vincent Deluard - a strategist for TrimTabs Investment Research (25% of the top 50 hedge funds in the world use TrimTabs' research for market timing) - said last month:
We've never seen this before – such a huge rally, and the little guy is out.
Some argue that it is high-frequency trading or momentum-chasing trading algorithms doing the buying, and that the market will tank when they change their game.
