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A "Melt Up" rally in the U.S. stock market. A "Melt Up" rally is one that has precious little to do with economc fundamentals. Investors act in a herd mentality, in a mad rush by investors, after a late realization that there are gains to be made. The Standard and Poor's 500 stock index went up 63% since its March 9, 2009 low, and is up 22% for 2009. Yet a lot of money is still in low yielding fixed income assets. Three month Treasury bills yield 0.03%, and a negative yield where investors actually pay the government to safeguard their money. In January, $4 trillion were in money funds, they were recently at $3.339 trillion, according to Investment Company Institute. And this could lead to more money going into stocks, but some of it could go into emerging markets first. And the smart money may see the melt up continuing, as a sign to pull out. In any case without economic fundamentals, Farzad of BW, sees a multiyear bull market as remote, or ending up similiar to the meltup in early 2007 which ended in late 2008 with a market collapse....

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Stock buyback strategies change as U.S. companies support falling stock price during down cycles and pull back as prices rise higher.

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Edward Johnson and daughter Abby Johnson- Fidelity Investments succession turmoil and Abby Johnson emerging as CEO is covered in a new book- House of Fidelity by Justin Baer, Deputy Markets Editor WSJ. CEO Edward Johnson (Ned) failed to come up with a succession plan and executives under him were planning to sell the company to Chase or another bank. Ned had talked to Chase's Dimon in 2005 and said he was not interested in selling the company founded by his father. Yet this is what executives under Ned, Reynolds had in mind, who did not have confidence in Abby Johnson's leadership. Fidelity Investments has recovered from poor performance in that period and manages the pension plans of employers in the US, being the largest in this business. In 2026 Fidelity manages life savings of 20% of American adults and 50% of these customers signed up in last 5 years, says WSJ. After a period in her performance in the mutual funds business which was not great Abby was listed for demotion by executives under her father, who would sent her to run the philanthropy part of the business. It shows how awoman now 64 years struggled through this period and took the bold step of defying her father through control of 41% of the stock of the company to gain control of the company- a step that led to her father relenting and letting Abby run the company. It is a tale of how in such situations even the most favored can be put at a disadvantage by perceptions - in this case by Reynolds of Abby's leadership and ability- and need to act swiftly and decisively after impressions have been formed that lead to an outcome that doesn't need to occur. Her father Ned even though he in his younger period was a good stock picker, failed in two ways. By not planning a clear succession and lacking confidence in his daughter to overcome temporary obstacles. ...

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The Dow Jones Average jumps 296 points on Dec. 7, 2016, with a broad rally including banks and industrial companies, but excluding health care shares which suffered from comments by Trump to Time magazine that he would "cut drug prices."

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David Reilly says the Fed's response to the large volatility in the stock market after the credit downgrade of the U.S. to AA+ makes sense. The Fed's Open Market Committee voted 7-3 on August 9, 2011, to keep interest rates exceptionally low till mid-2013. With credit markets working and the financial system having sufficient liquidity the Fed did not need to take drastic action. Coming only a short period after the end of QE II, a QE III could be seen as an over-reaction. Another reason for the Fed's action- more pressure was needed for the U.S. government and Congress to shoulder responsibility for the economy. In an earlier statement the Fed had pointed out that the Fed by itself can only do so much and this is consistent with that thinking. There are important headwinds from housing, large consumer debt, deficits, and high unemployment that the Fed alluded to in that statement that will take time to reverse with policy action on several fronts over a longer period. In the speech made on June 6, 2011, U.S. Federal Reserve chairman, Ben Bernanke, said "monetary policy cannot be a panacea."...

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This editorial in the Economist points to the long term effects of a crash in China's stock markets. This would reduce access to equity markets for corporate funding. It would pose larger risks because of the increase in total debt in the Chinese economy from 150% in 2008 to more than 250% in 2015. The fallout would not be as large as in the U.S. after a stock market bubble collapsed in the U.S., because market capitalization is about 40% of GDP, and households have put about 10% of their wealth in stock markets. Coming at a time when China's economy is slowing, and it faces other problems such as addressing pollution, healthcare and other issues, this could lead to a further slowdown for a prolonged period. Most economists from Krugman to Summers, say China is no exception to basic rules of finance and economics. The indexes have accelerated in the past year- CSI300 index of China's largest mainland stocks doubling in the past year, and ChiNext market for startups tripling in the past year, and at P/E ratio of 140 times prior year earnings. 4 million new brokerage accounts opened in one week of April 2015, and a study shows about 66% of people buying stocks for the first time have no schooling beyond the age of 15. Margin financing has increased to 2 trillion yuan or $325 billion. Clearly unlike the U.S. investors and stock market authorites have not experienced the collapse of a bubble with all the economic distress for a prolonged period....

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Justin Lahart offers these clues to a puzzle why is the US unemployment rate stable when no one is hiring? The 2025 US economic growth rate shows strong economic growth, the stock market is robust, and the unemployment rate is low, yet this is not reflected in the job market. What accounts for weak hiring? WSJ analysis shows that for US job market 2026- quit rate is too low at 3.2 million  (Dec 2025) instead of 4.5 million (March 2022), hiring is low at 5.3 million. And overall firms are not laying off people which is reflected in unemployment rate at 4.4%. As a result even with strong economic fundamentals the hiring is at low levels and opportunities for new jobs scarce. In previous years more people quit jobs, more people were laid off and some firms continued hiring. There is also uncertainty about tariffs that may be playing a part- companies can wait and see how the tariffs policy works out over the next 6 monthsand delay hiring. Ai may be another factor for some firms as they evaluate its impact on their hiring needs. Research at the Brookings Institution and the American Enterprise Institute shows that immigration crack down on entry into the US after Biden era surge means less people from overseas to hire and less from the pool of immigrants. A striking piece of this research is that instead of 140,000 jobs needed a month to keep the unemployment rate stable in 2024 the US economy now needs in 2026 after immigration crackdown only 15,000 jobs a month.  ...

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Bubbles in the Chinese and Indian stock markets. And the catching a falling knife phenomenon, how far will certain stocks fall considering the risks in 2007 for the US economy, and its spillover effects into Europe and other places.

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Eurozone data shows the GDP growth far outpaced the U.S.. In the first quarter GDP growth was 0.5% from the prior year, the annualized rate at 1.8% compared to 0.7% for the U.S.. European stocks are benefiting from the recovery in the eurozone. A global recovery in inflation is also helping, with political risk fading. Recovery is also taking place in parts of southern Europe, with 3% growth in Spain.

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Robert Doll, equity strategist for Black Rock, the world's largest money manager, says the growing population of the U.S. will drive economic growth in the next decade compared to Japan and Europe. He says that over the next two decades the U.S. work force will grow by 11%, Europe's will decline by 5%, and Japan's will decline by 17%. China's population growth will be only slightly more than that of the U.S. during that period and Doll expects China's growth to slow. He sees America as the best bet in a bad neighborhood. Higher immigration in the U.S. is a huge positive, as he points out economic growth is simply the product of the change in the size of the work force multiplied by its productivity. And America's productivity is good enough compared to other nations, is how Doll sees it. In 1995 the U.S. produced 25% of the world's goods and services, it was still 25% in 2010 says Doll. Other economists have pointed to this and observed a similiar pattern for most of the twentieth century. Doll sees this pattern continuing. India's population will show signficant growth and he sees greater opportunity there for long term investing. Doll sees a decoupling between U.S. stock markets and high unemployment. Most of the large U.S. companies generate a large portion of their sales and profits overseas. He estimates 40% of the business of these companies is overseas. Doll's estimate is for 70% of the incremental earnings growth of the S&P 500 companies coming from overseas markets. He also expects higher inflation with the Fed keeping it from getting out of control, and deficit cutting efforts to cut some trillions over the years. He sees favorable prospects for equities based on the money growth being strong and credit markets being good....

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In a sign of the low returns in the past year for pension funds, the 896,000 California teacher retirement pension fund CALSTRS, shows returns for year ending June 30, 2016, at 1.3%. Half of the holdings of CALSTRS are in U.S. and global stocks with returns of negative 2.3%. Real estate provided return of 11% but overall the returns were low. Over 10 years the returns of CALSTRS are now at 5.6%. The California Public Employees Retirement System (CALPERS), says its returns on its investments were 0.6% for the past year. With large retirement obligations pension funds in the U.S. face real challenges in this low return environment. Private equity investments of CALSTRS had returns of 2.9%, also lagging behind.

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Caught in the crossfire  between trading giants U.S. and China South Korea is feeling the impact in stock markets slumping, and downgrading of growth and inflation forecasts. Korean Won has fallen 7% in 2019 and the Kospi stock exchange 4%. Relations are frosty with its trading partner Japan.

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Statistics show small investors are shifting away from stocks. The charts also show less buying on dips in the market. US mutual funds that invest in stocks saw net inflows in January, but net withdrawals in May, resuming a trend that is in place for several years. There is a growing loss of confidence in the market among small investors and a cautious approach is taking hold.

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David Kostin, Goldman Sach's U.S. equity strategist and his prediction of the S&P 500 at 1250 at the end of 2012. The S&P was at 1421 on April 1, 2012, the highest it has been since May 20, 2008. In his research note Kostin says that over the longer term the stock market will offer opportunities after a more normal growth environment is reestablished. This is similiar to the view held by John Bogle, founder of Vanguard. For the short term- the 2012-2013 time frame Kostin sees tactical risks, and results below average. The reason he gives is low economic growth and the large degree of uncertainty. The situation in Europe shows slowing to no growth and more deficit problems, and the sanctions on Iran pose risks for oil prices.

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Warren Buffett's Berkshire Hathaway sold $75 billion in stocks in the second quarter 2024 including half of its Apple shares. It has now sold off most of its Apple shares. The cash level is now $277 billion in August 2024. The market is now recalibrating after tech stocks are going through skepticism. Berkshire is also trimming investmetn in Bank of America its second largest investment. Bufett says it is better to hold on to cash as he cannot find places "with very little risk that can make us a lot of money."

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How do you setup a vaccine business. Consider Mr. Adar Poonavalla in the city of Pune in India. His company Serum Institute of India, remains family owned. Founded in 1966 by Cyrus Poonavalla, it produces billions of doses of vaccines for measles, polio and other diseases. It is expected to be one of the key sources of vaccines because of its expertise and the stocks of vials and other supplies that it has in stock for the next 2 years of vaccine production. It is working on a separate facility for coronavirus production that could turn out 800 million doses of vaccine at a price of about $13 a dose over 2 years. Serum Institute is working with 3 companies that are doing the research on the vaccine for coronavirus in the U.S. and Europe, and will play a key role in the manufacturing of vaccines. To respond to the question how do you setup a company to produce vaccines for the people of the world. This is what Mr. Poonavalla says- he will only work with ethical long term funds and sovereign funds because he does not want to be in the situation where he has to charge high prices to give them returns. Unlike most countries in the world, India is unique in making certain that most of the basic pharmaceutical drugs are available to over a billion people at a low cost. Serum's goal is low cost quality vaccine production so that over a billion people in Asia can be "protected from the birth onwards." As the U.S. and Europe and large parts of Asia, Africa and Latin America, face the second vaccine phase of the coronavirus response following difficulties in PPE, Ventilators, and Masks in the first phase, they can have confidence because of companies such as Serum and the research centers in U.S. and Europe like the one at Oxford University. ...

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The U.S. Federal Reserve issued the results of the third round of stress tests since 2009. It said 18 0f 19 financial firms had enough capital buffers to continue lending in a sharp decline in the economy with a fall in housing prices and the stock market and unemployment rising to 13%. Ally Financial failed the test. Citigroup, MetLife and SunTrust Banks were asked to resubmit their capital plans to the Fed. Citigroup's dividend plan was rejected. No banks were asked to raise capital. J.P. Morgan and other banks were allowed to issue dividends and buyback shares. J.P. Morgan plans to repurchase $15 billion in stocks in the next 12 months. Wells Fargo and U.S. Bancorp also plan to issue dividends and buyback shares. Analyst estimates are for $32 billion in added dividend increases and share buybacks in in the next 12 months. The results are a boost for bank stocks.

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Shiller says that his CAPE ratio for the U.S. stands at above 25 in 2014, from 23 in 2013, above the 20th century average of 15.21. He looks at possible reasons for the CAPE remaining above 20 for long period of about 20 years, except when it dropped to 13 following the 2008 financial crisis. CAPE is similiar to the price earnings ratio except it uses the average of the last 10 years earnings. Reasons he gives are low interest rates, high bond prices, Fed policy, and the lack of alternative investments in a low interest rate environment that puts more money into the stock market in the U.S.

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Apple, Microsoft, Merck, Nike and other U.S. companies raised about $27 billion in the early part of 2013 with bonds yielding about one percentage point above U.S. government bonds. With the increase in yields in Treasury bonds following positive news from the housing sector, an improving U.S. economy and improving share prices in the stock market, corporate bond prices are declining. Apple's 10 year bond declined by 1.15% to 95.85 cents on the dollar. Analysis from William Blair shows Apple's 10 year bonds trading at 97 cents to the dollar if rates on 10 year Treasury bonds were 2%. At rates rising to 3% the Apple bond price would decline to 88.88 cents to the dollar, and a loss of 8.37%.

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Yale University professor Robert Shiller, founded CAPE, the cyclically adjusted and inflation adjusted S&P price earnings ratio. It takes the average of the 10 past years of earnings and the inflation adjusted S&P 500 index to arrive at this CAPE P/E ratio. Here he looks at CAPE in 2000, 2007 and 2013, to get a sense of where the U.S. stock market stands today and investor confidence. In 2000 CAPE reached 46, in 2007 it was at 27 and in 2013 it has reached 23. The historical average for CAPE is 15- this goes back in data to 1871. Zweig in the WSJ March 8, 2013, cites data from the last 50 years showing the historical adjusted P/E at 19.7. The investor confidence in the stock market or "valuation confidence" based on work done by Shiller is at 72% for institutional investors and 62% for individual investors in 2013, it was about 80% for both categories before the market peak in 2007. This data is on the website of the Yale School of Management. Shiller says the levels of optimism can fluctuate and change easily, requiring careful thinking by investors. He confirms Browning's assertion in the WSJ March 6, 2013, that in inflation adjusted terms investors are not ahead in the last 13 years, when compared to 2000, based on the inflation corrected S&P Composite total return index....

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A stronger U.S. economy, gradual upswing in Europe and Japan, makes the stock market downturn in Jan. 2016 of a completely different nature than the one in 2008. Problems are seen in some emerging markets, including China. Oil price decline helps India and oil importing countries.

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Casey points to the co-dependency between stock market investors in the U.S. and the Bernanke Federal Reserve. The stock market slumped in July 2013 and then hit new highs when Fed chairman Bernanke clarified that monetary policy will contiue to be accomodative for a long period with rates low even as the Fed tapers off its bond purchases. This makes the task of normalizing interest rates tricky for the Fed. Bernanke and the rest of the Open Market Committee have to consider the problems of a bubble in the stock markets, avoiding a destabilizing selloff in markets because of strong signals of normalization of rates, and changes in economic conditions in the U.S. and to some exent globally. Similiar reassuring statements were made by the head of the Bank of Japan, Bank of England and the ECB.

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Chinese companies are heavily invesing in the stock markets and many companies get a large part of their earnings from the stock markets. The myth is that the real economy will simply go on like before if the stock market takes a nosedive. This is not true because large and small companies are both playing the stock market and IPO's in a big way. They are using corporate funds to invest in IPO's and stocks to boost their earnings. Morgan Stanley estimates that more than one third of corporate earnings in China come from putting money in stocks. The figures are much higher for some industries. In the health sector this number is 54% including real etate earnings also and in consumer goods sector 65% according to Morgan Stanley. If the markets take a steep downturn then these companies will have to show the losses on their income statements, depressing earnings and pushing their stock prices down even further and more steeply. Japan experienced something similiar in the the eighties. And in one respect the situation is more dismal than in Japan. The financial statements may be even less transparent than the ones in Japan's boom period. And investors lack the expertise to figure out whats behind the financial statements. There is no effort to think deeply about what can happen when a nosedive in stocks hits corporate earnings and these losses create a vicious cycle that sends stocks into a further fall turning into a freefall. A Professor of Accounting at a Business School in Shanghai, head of China research at Morgan Stanley and a governance expert in HongKong all point to the dangers in the situation as it evolves. Most of these bubbles like the housing bubble in the US have a situation which George Soros described recently as it burst after he had kept predicting for years that its going to collapse and finally he got tired of saying that because it continued going up. Its possibly the nature of bubbles that a sharp observer can tell whats going on but the phenomena will continue for quite awhile even when its obvious that something is wrong. Its something to do with human nature and the dynamics of human situations where knowing the danger the person will continue to act the opposite way just because everybody else is playing in a certain way. This is the situation in China in 2007. ...