Market Dementia

The patterns below are counter intuitive. Falling volume, falling momentum and rising prices.

Note how On Balance Volume has failed to reach a new high

Applying common sense: The only logical justification for the above is that even though volumes of transactions are contracting, sellers are stubbornly holding on. i.e. “If we sell out, what do we do with the cash?”

The chart below shows that the 30-year yield has risen far more slowly than the 10-year yield – indicating that the market is not anticipating rising CPI.

The chart below shows that personal savings as a percentage of personal disposable income was 4.9% on November 8^th 2013 – up from a low of around 2.5% in 2007.

To September 2013, the median household income was lower (in real terms) than it was in 2008, and it was effectively the same ($52,529 vs $51, 981 = 1.2% growth) relative to the peak in 2008

Below is a chart showing year-on-year changes in US corporate profits

Finally, government spending as a percentage of GDP has risen by around 3.75% since the emergence of the GFC – from 18.5% to around 22.25%

So how do we make sense of this?

Household incomes are flat in nominal terms (down in real terms)relative to 5 years ago, household savings rates are up (lower proportion of income being spent), government spending has risen moderately as a percentage of GDP,  corporate profits are flat, and the stock market is floating up on falling volume.

Conclusion

Optimism abounds but the situation cannot be explained in rational terms.   

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Brian Bloom

Tea Gardens, NSW, Australia

www.beyondneanderthal.com