There’s nothing of substance underlying the current market melt-up.
By Adam Taggart and cross-posted from Peak Prosperity.
Well, stocks are back at all-time highs. Ignited by the Fed’s “Not-QE” program and endless Trump administration teases of an “imminent” China deal, the S&P 500 has been propelled above its upward Bollinger band — a hyperextension only seen one other time since 2007:
Every week since Not-QE was announced has seen the S&P close green (this week finally ending the streak, barely). We’re officially in a melt-up, where both good news and bad news are accepted as valid reasons to push stocks even higher.
But what’s notable about this melt-up is that it’s missing a compelling narrative. Every past asset price mania required a feel-good mantra that convinced the masses “This time is different!”.
The South Sea bubble promised access to the untapped riches of the vast Asian sub-continent. Dotcom companies were going to unlock tremendous value previously trapped by the inefficiency of the old analog way of doing business. In 2017, Bitcoin looked like it just might replace fiat currencies overnight.
During the price melt-ups accompanying each of these manias, the public fell for the siren song of a radically better future, available RIGHT NOW if you just jump on the party train before it’s too late.
But today? What’s the radically better future being promised? Where’s the party train headed to?
A Parade Of Horribles
As best I can tell, it seems the rationale (I’m using that term very generously) for the current market melt-up is that:
- The Fed is backstopping the market again
- A trade deal with China is going to happen, likely soon
Let’s dig into each of these. But before we do, let’s be clear that neither of these promises a “radically better” future.
The Fed, and its central bank brethren around the globe, have been backstopping the market for the past decade. There’s really nothing new in that.
And resuming friendly trade with China will largely be a restoration of past conditions. While, yes, the drag of the recent trade constraints will be removed and perhaps the US will receive some nice concessions, it’s not like we’ll be gaining a major new trading partner that we didn’t have before.
In short: neither new QE or a China deal is transformative. Manias typically require a transformative narrative as their fuel.
Now, looking at the Fed’s new QE program: how material is it? Well, since the outbreak of the GFC, we know that the central banks have more than tripled the world’s money supply (from roughly $6 trillion in 2008 to $20 trillion today)…