Bad news is good news… again

Posted | 02/12/2015 / Views | 3024
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Oh what an interesting night last night…  Just 2 weeks before the supposed ‘sure thing’ US rate hike the ISM Manufacturing index plunged to just 48.6, contractionary and the weakest print since June 2009.   On such bad news you would expect the USD and bond yields to both fall, and fall they did.  But surely you would expect shares to fall too right?  Well no… as you can see below they went up (the Dow Jones up 168)!

Bad news is good news… again

Why you ask?  Well the chart below might give an insight into the market’s thinking.  You see shares are trading way above fundamentals, fuelled mainly on cheap money in a zero interest rate environment.  Key data as bad as this has all of a sudden seen bets on the December rate hike fall and hence the stimulus game into shares ramps up.

Bad news is good news… again

The danger is of course that the previous ISM Manufacturing index high in 2014 coincided with the end of QE3 (largest money printing program in history).  We have seen a severe decline ever since, back to the levels prior to this ‘emergency response’ started and this time they are talking of a rate hike instead of easing? What could possibly go wrong….?  Tomorrow we will show an incredibly insightful study on just how over valued the US stock market is.  (Hint… it could go horribly wrong).


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