Irrational exuberance of the stock market

irrational-exuberance
Does anyone out there know why the U.S. stock market is so bullish?
Yesterday, the Dow Jones Industrial Average (INDU) rose to its highest level ever — closing at 14,253.77 — erasing losses from the financial crisis after a four-year rally fueled by the fastest profit growth since the 1990s and monetary stimulus from the Federal Reserve.
Jim Cramer, host of CNBC’s Mad Money, shows us how yesterday compares with October 11, 2007, the last time stocks were this high:

  • Dow Jones Industrial Average: Then 14164.5; Now 14253.77
  • Regular Gas Price: Then $2.75; Now $3.73
  • GDP Growth: Then +2.5%; Now +1.6%
  • Americans Unemployed (in Labor Force): Then 6.7 million; Now 13.2 million
  • Americans On Food Stamps: Then 26.9 million; Now 47.69 million
  • Size of Fed’s Balance Sheet: Then $0.89 trillion; Now $3.01 trillion
  • US Debt as a Percentage of GDP: Then ~38%; Now 74.2%
  • US Deficit (LTM): Then $97 billion; Now $975.6 billion
  • Total US Debt Outstanding: Then $9.008 trillion; Now $16.43 trillion
  • US Household Debt: Then $13.5 trillion; Now 12.87 trillion
  • Labor Force Particpation Rate: Then 65.8%; Now 63.6%
  • Consumer Confidence: Then 99.5; Now 69.6
  • S&P Rating of the US: Then AAA; Now AA+
  • VIX (market volatility index): Then 17.5%; Now 14%
  • 10 Year Treasury Yield: Then 4.64%; Now 1.89%
  • USDJPY (US dollar to Japanese yen): Then 117; Now 93
  • EURUSD (Euro to US dollar): Then 1.4145; Now 1.3050
  • Gold: Then $748; Now $1583
  • NYSE Average LTM Volume (per day): Then 1.3 billion shares; Now 545 million shares

In other words, the fundamentals of the U.S. economy are in very poor shape. And yet the stock market is at a record high.
What goes irrationally up must come crashingly down. As Cramer puts it, “we all know it’s going to end badly, but in the meantime we can make some money.”
As long as you sell ahead of everyone else.
~Eowyn

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tonyn
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tonyn

You are right The fundamentals are not there . Whats different this time over Bushes time when the Hawks started calling the Stock Valuations Book Cooking is Obamas Federal Reserve QE is pouring that Cash into the portfolios of these stocks through the Corps and this Covers up the book cooking which is Now been fundamentally transferred over the Federal Reserve who is not subject to the same SEC regulations as the Corps as that Under the Bush era were and called out for Book Cooking with Private Debt accumulations , right ????? So there has to be another reason… Read more »

Ted Nougat
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Ted Nougat

40 Billion in mortgage-backed securities (bad loans) being bought by the Fed each month. Maybe this month’s check just cleared?

 
japoa
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“FIGURES DON’T LIE , BUT LIARS FIGURE “……….The fiat money is going a long way to buy time . Just enough time for all the ” everyday Joe’s ” to put their $ back in and then kaboom .

 
Ginny
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Ginny

The entire world has gone to hell!!

 
joandarc
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joandarc

Thank you Dr. Eowyn for this interesting post. There is no rhyme or reason to the stock market; this is why this is not good news, especially in light of the fact that employers are still not hiring!!!

 
alice wolf
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alice wolf

Congress needs to bring actions against the Obama Administration that will relieve the members of that body from their obligations, and put in a bipartisan group of men and women from their ranks, Congress’s ranks, to run the country until the economy is back up and running again. There is a bill waiting to be heard in the House that demands the reinstatement of Glass Steagall, and that is step number one. We need credit to be uttered through congress by a new national bank, that is if the FED is bankrupt in fact which is what has been reported… Read more »