i wasn't trying to say that amount of money thrown at the market = change in market cap. i realize that it is only the last trade that determines a market cap, however, in the same vein it is worth remembering that the ratio of total money stock as a percentage of total market cap has plumbed record lows over the past two years.
my comment was more along the lines that we would need a real explosion in the money supply, from what is already a historically incredibly lofty growth rate, to regain NAZ 5K in such a short time.
in the end, the marginal demand that is needed to drive prices higher requires excess liquidity sloshing about in the system. the reason why the stock market has risen so much in excess over the underlying fundamentals, i.e. the p/e expansion over recent years, is that the monetary inflation (the excess of money supply growth over economic growth roughly) has spilled into financial assets.
the widely touted theory that we have simply witnessed a "reappraisal of equity risk premiums" is typical new era nonsense imo...in reality there was too much money, and it had to go somewhere.
which brings me back to now...now we have a situation where the first natural limits to this unfettered credit growth have been encountered. look at the corporate bond market...the sheer size of the debt mountain has begun to raise doubts about the future ability of the debtors to service/repay their debt, without any stats as of yet indicating an economic slowdown...if anything the first two quarters were smoking, in spite of which junk defaults reached record levels. when capital markets begin to suffer a credit crunch, the next thing is that bank balance sheets begin to balloon...as borrowers increasingly have to fall back on their banks for their funding. that's exactly what has happened this year. next thing, the banks need to slow their lending too...as it becomes more difficult to sell loans into the asset backeds market. at this stage, the GSE's have taken it upon themselves to let their assets balloon again...20% annualized growth rate in Q3. earlier this year the brokers grew their assets most aggressively. you can find detailed numbers (which btw. are all whoppers) in Doug Nolands credit column.
i merely list them to illustrate how many liquidity fallback positions the system has...however, one by one, they begin to encounter limits. falling stock prices aren't exactly helping either btw, as per September there was still over $250bn. in margin debt outstanding.
now the Fed can go and do its repos and coupon passes, and treasury can swap cash and IOU's between bondholders and the SS fund. but if there are no takers, it's no use...
for the NAZ to regain its highs so quickly a whole lot would have to go right...and to me the debt/leverage problem seems to be the most difficult even though it is the least publicized one.
agree btw, the volatility is incredible... |
