Friday, March 30, 2012

Weekly Wrap

Stock market action over this past two weeks had me chuckling. So tell me, just how many of you became fearful, got shaken out of the bushes, and moved out of stocks the last half of this month? Personally, market action the last two weeks of March has given me even more reason to be bullish.

According to -
Broad support on Friday helped the S&P 500 come back after booking three straight declines. The effort helped feed a weekly gain of 0.8%, which stands as the eleventh weekly advance in 13 tries for the S&P 500. That hot streak drove the broad market measure to a 3.1% gain for March -- its fourth straight monthly gain -- and a 12.0% gain for the first quarter.
The S&P 500 Index ended the week at 1408, rallying to around a 24% gain since my initial forecast.

But I believe that's not the only good news. Being that it was the end of a great quarter, many money managers whose jobs are dependent upon generating alpha for their investors, had to realize their gains by selling their long positions. It was imperative they lock in their gains in order to show their investors how successful they've been, right? Otherwise, impatient investors will lose faith in their perceived "abilities" and move their money elsewhere.

But now, those same money managers must reinvest those realized gains back into the markets in order to keep generating alpha. Being in cash or Treasuries won't generate any gains what-so-ever. Bonds are facing significant interest rate risks, and gold and silver are at peaks levels while facing an improving economy. The Fed has already proven that economic failure is not an option anywhere.

On the other hand, stocks continue to fare well in an improving economy, pay higher dividends than many fixed-income investments, are fairly valued, and are generating significant alpha right now.

So, where do you think those money managers will reinvest first quarter's realized gains?

IMO, they MUST continue invest in stocks again in order to remain competitive. And as they do so, the stock markets will continue to climb. It's one big perpetual hypocrisy in which success draws in even more investors, leading to even higher stock prices. So, I'm leaving my portfolio alone for now.

Sound too corrupt for you? Well then, you might want to re-evaluate your perception of the rules.

Corruption from menoargenti on Vimeo.

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