Understanding The Red Bull Market
If you've ever been duck hunting, you know that the day begins at 0 dark thirty hours before sunrise. You are up with milk men and newspaper deliverers ready for the drive or boat ride to the blind. On the second or third day of the hunt suffering from lack of exercise and sleep, I sometimes need the jolt of a caffeine-laden Red Bull. The result is I am a wide awake somewhat jittery hunter - hardly a healthy way to start the day.
To a certain degree, our markets have ingested their fair share of Red Bull. Three plus years of artificially low interest rates and an abundance of liquidity provided by our Federal Reserve has produced an economy jittery, tired, and in need of a healthy diet and exercise regiment.
The unhealthiness is the lack of sustainability for our economy without consistent job creation and a stable housing market. Without one, the other flounders. Simply put, middle class jobs are created when housing stats are flourishing. Electricians, roofers, brick masons, dry-wallers, landscapers, plumbers, tile and granite installers all have consistent work. In turn, they have consistent paychecks, pay taxes, and have the confidence to borrow money or use revolving credit.
In this environment, markets are sustainable. They are less concerned with headlines and volatility becomes less the driver. However, without employment and housing growing, we live in the moment energized by unhealthy means. When the stimulant runs its course, we are left tired and irritable.
Unfortunately our own Fed has said that are economy is still too unhealthy to begin the diet and exercise program until 2014. Until then, we will have to rely on Red Bull to keep our markets awake.