Well, smart money is not smart because it chases rallies. Instead, smart money sells into rallies, like this one for instance. And, I see definite signs that this in fact is exactly what has happened. So I am not worried that $3 trillion in MM funds will impulsively decide to join the party at the 11th hour, after the market (QQQQ specifically) has advanced 42% in less than 3 months.
Besides, there are better things to spend that $3 trillion on. Oil, for example. Global demand for oil is down 7% from one year ago, yet oil prices have nearly doubled in less than 4 months. For every 50% rise in oil, that translates to $1.5 trillion. So, that $3 trillion will be needed just to pay for the increase in oil prices.
But that's not what will happen of course. That is only a hypothetical. What will really happen, IMHO, is about the same thing that happened last May/June (chart below).
The supposed economic "reasons" for the continued rally are absurd. For example, today the rally was attributed to "encouraging economic data." Well, I don't know what is "encouraging" about the fact that today we had the 4th largest bankruptcy filing in history, one that will probably burn up hundreds of billions in taxpayer money (directly or indirectly) to keep it afloat before all is said and done. Personal incomes were flat today, and U.S. manufacturing activity continued to contract (but at a slower rate than before). And the dollar continues its spectacular collapse (hence, part of the rise in oil and commodities prices). And, there is no sign that unemployment is getting any better, and most economists predict 10% unemployment at least by the end of the year.
That doesn't seem like the kind of news that would push MM cash into the markets.
History certainly doesn't favor a summertime rally either. The returns for the month of June in the SPX over the past 20 years is -0.5%, but in bear markets like this one, the returns during the summer are considerably worse. Last year, the SPX dropped 11% during June. I won't be one bit surprised to see something similar to this happen soon.
But that said, the markets have an amazing capacity to stay irrational for sometimes surprisingly long periods. When that happens, the regression towards more "normal" values tends to be just that much sharper (in either direction). So, I also won't be shocked to see this irrational exuberance continue for another week or so, possibly longer. But I am very confident that the next item on the agenda is a medium-term correction that will eventually take the market below the lows seen in March. And, the bullish bluster and failure to face economic reality will eventually end, and probably very soon.
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