Animal Spirits

cat and mouse

I never listen to analysts, mainly because they are rarely right and haven’t a clue how stocks or the markets work. Yesterday however, Joe Lavorgna had a great line when he said, “The Fed is doing 150mph on I95 while texting”. We all know by now that the Fed’s objective is now paying off, as we are all forced to chase returns and buy stocks. It’s not just Bernanke; we are now in the world of what I call the “global Fed”.  Japan and Europe are printing furiously. China has bottomed too.

Managers are currently in their bunkers and situation rooms figuring how to reduce their fixed income exposure. They know they have to reduce. They know they are neck deep in possibly the most crowded trade of all time and they know they have to get “more long” stocks. Meanwhile the market goes up in their faces every day. If a pension fund manager or an insurance company is say 20% long equity, and moves to say 30% long equity, the bid to stocks will be enormous.  Just extrapolate that on a global basis, I am being conservative with those exposure guesses. Over time they may go to 50% equity exposures, if not way more.

Let’s face it, the jobs number sucked yesterday and if it wasn’t for some revisions In December and January it would not have been pretty. Throw the playbook away, it doesn’t matter. Bull markets have a mind of their own. It’s all about who blinks first and the chase for alpha has begun. The Yale and Harvard endowments underperformed last year and many well respected fund managers didn’t even come close to cutting the mustard last year.  Many have already missed January for goodness sake.

I’m not giddy over yesterday’s action; I would say most of that nice uptick was due to new month allocations. It is hard to deny though that the data was good. Michigan sentiment was bullish and the ISM number was as well.  Housing continues to play nicely too.

We are due for a pullback, so get ready to get exposed.

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