Let’s think this through: Markets and economic analysis
I just heard on the financial news tv station as I was brushing my teeth this morning that only 11% of long/short hedge fund managers are outperforming the markets this year. I’ve talked a lot all year about how the professional money manager has seemed to be overly bearish about the near-term and they’ve obviously been putting their money where their mouth is by being overly short and/or underexposed to the booming equity markets. And yes, despite the horrific problems going on with Main Street’s economy, the Wall Street/Corporate economy is indeed booming and with it, the equity markets too.
Consider this:
Corporate profit margins are at all time highs. So too are corporate profits. So too are corporate profits as a percentage of GDP. So too are banking profits as a percentage of GDP.
The S&P 500 is at a four-year high. So too is the Dow Jones Industrial average.
The Nasdaq is once again near 12-year highs.
What were the problems our country back in 2009? Entrenched high unemployment. Spiraling wealth gap. Real estate/foreclosure/mortgage crisis. EU/Greek/Spain/Italy debt crisis. I wrote and analyzed each and all of those trends repeatedly back in 2009 and explained to you guys that despite all of those problems, that a Federal Reserve hell-bent on 0% interest rates and other revolutionary new easy money games along with the Republican/Democrat Regime and its policies of fighting any downturn in the economy by throwing more corporate welfare, stimulus and targeted tax tricks at the biggest corporations in the country would result in a booming stock market and continued record corporate profits for the biggest companies in the country.
What’s changed? What are the biggest problems in our country’s economy/market in 2012? Entrenched high unemployment. Spiraling wealth gap. Real estate/foreclosure/mortgage crisis. EU/Greek/Spain/Italy debt crisis. What does Robama and his so-called opponent Obomney propose to do to “fix” the economy? They both have identical themes of throwing more corporate welfare, stimulus and targeted tax tricks at the biggest corporations in the country. And what does the Fed have in mind to suddenly do their job to jumpstart the Main Street economy? That’s right, more easy money for Wall Street’s economy, of course!
And so I ask you, what is the most likely outcome of these policies over the next twelve months to two years? Is it more likely to result in a collapse of corporate profits and a market crash? Or are we more likely to see continued record profits and a market that climbs the wall of worry for another 15-30% of broader market gains?
Certainly the imbalances will at some point come back to haunt the markets and the whole of the economy. But trying to guess when those hauntings come has killed 89% of hedge funds this year, and I’m not sure it’s going to get any easier timing the top in the markets and/or a drastic turn south in the corporate economy in the next 300 or 400 days or so.
And finally, looking at this set up from a near-term perspective, I’d note that those 89% of hedge fund managers who are indeed underperforming right now are right now looking at heading into the fourth quarter knowing that unless they have to somehow catch up and pass the booming stock markets before year end or they’re likely to be out of a job for missing such a move as this year has had. That’s a potential recipe for even bigger gains in the broader markets in the fourth quarter of this year as those guys cover their shorts and/or chase the momentum movers to try to salvage their businesses.
