Shout out to a Friend

by Jay Pestrichelli on April 12th, 2013

Dean Zayed, a friend of Buy and Hedge, appeared on Closing Bell with Maria Bartiromo yesterday. Here’s the video
Great job, Dean,  but next time remind viewers to stay hedged (wink wink) which we know you’re a big supporter of.

Dean points out that the Fed’s monetary policy is propelling the stock market higher and not earnings.  He calls it the “Central Bank Put”, which means that they have essentially created an artificial hedge against bad fundamental data. Of course, there isn’t actually a put, but it does help to give those willing to take risk, more courage to jump in day after day.
 
It continues to be a topic of conversation, but can the Fed still be the reason everyone believes is causing the market to move up? I worry because it seems all are in agreement on this. And when everyone is in agreement on something, it usually turns out to be the exact opposite on Wall Street.

Of course, we’ve pointed out the Fed’s impact to the market for months now as well. But can stocks pushing to new highs be fueled by something else?If it really is the cheap money from low interest rates and the flow of money into the system, why is gold hitting new lows?  Ask yourself what is really behind this rally and if you can’t come up with an answer, then you should be sure to stay hedged in case a turn comes that you haven’t foreseen.
 
We’ve said that if you were bullish in December, there’s been no reason to change your opinion as same reasons existed in February and March. However, we getting into an environment of multiple expansion and those can end ugly. Multiple expansion is when stock prices go higher based on the same earnings. The multiple applied to their earnings expands and the price to earnings ration increases.
 
Although Dean states that we’re in an earnings agnostic environment, sever disappointments will not only cause stocks to retract poorly, but it could be exacerbated because the multiple may return to recent historical levels. 


Posted in not categorized    Tagged with no tags


0 Comments


Leave a Comment