Stocks started out strong this morning on 'better than expected' short term macroeconomic results, but gave up ground on the news that the problems in the Ukraine remain elevated.
This serves to highlight the 'puffiness' that underlies the current pricing levels of both equities and bonds. It is like stocks and bonds are a paper construction, and the filling that gives it support is ping pong balls. If the right kind of spark hits these markets, the result will be impressive, but not pretty if you are too close.
It is hard to predict that sort of thing, so I do not try. The standard ploy is to predict it every so often, allowing the old predictions to die of old age, but to take one that happens to be right and carve it in marble and frame it. If someone had a really great system, you would be unlikely to hear about it until it stopped working. And most of the systems I have explored are not all that reliable, except the ones based on unfair advantage and what are essentially control frauds.
There are some times when the insanity of valuations do get painfully obvious, but if you see it one must generally end up fighting the cognitive dissonance of being a lone voice, fighting the animal spirits, or more plainly madness, of the mob, whipped to a frenzy by the con men and their establishment shills. I think we can remember a certain central banker who flat out stated that a bubble in housing was not possible, even as he inflated a massive bubble that shook the economy of the world to its foundations.
So what are we to do. Watch, listen, and learn. And recognize that things are not always what they may seem. One thing you might have noticed is that the louder that someone gets, the less that they generally know.
With the Fed at their back and the dollar machine holding up, there is no telling how long this 'recovery' and rally in stocks and bonds can continue. I do happen to think that at this point the equity and bond markets are an accident waiting to happen. The trick is not in predicting what and when, but rather accepting that we will be in the position of having incomplete information, and figuring out how to play it from there.
Have a pleasant evening.