Are Markets Addicted to Easy Money?
The following is an excerpt from our recent research piece "Are Markets Addicted to Easy Money?" The full report can be found here: http://www.pathlightinvestors.com/are-markets-addicted-easy-money
Since the financial crisis-induced stock market lows of March 2009, the S&P 500 has gained 141% (as of June 30, 2013), all while U.S. gross domestic product (GDP) has shown mediocre growth at best. Many investors simply cannot understand why stocks have risen so much. Certainly, the low interest rate/easy money policies of the U.S. Federal Reserve (the Fed) and other global central banks have pushed would-be income seekers into stocks, but the questions remain: have equity markets become addicted to this drug, and what will happen when the Fed begins to truly tighten?
Let us start off by saying that we do not stand with the camp that believes equity markets have increased on nothing more than money printing. This camp tends to completely ignore the real economic improvements and strengthening of corporate and individual consumer balance sheets that have occurred over the last four years. This camp discounts any piece of positive economic news, brushing it aside with a reference to “Helicopter Ben” (comparing Fed Chairman Bernanke to a character dumping money out of a helicopter to the cheering crowd below). This camp seems to be rooting for another economic calamity, desiring to finally be proven right many years and many missed large stock market gains later.