Tuesday, August 25, 2009

Behind the Stock Market Rally

Aside from the fact that some of the current stock market rally is likely to be the result of tail winds from Bernanke's 15% annualized money printing between September '08 and February '09, Hans Palmstierna sends a long a link to a LaTi story which indicates that some of the money boosting the market may be a result of traders moving out of cash and aggressively into the market:

Stung by punishing losses in the bear market, some individual investors are souring on traditional buy-and-hold investing in favor of aggressive trading aimed at scoring big gains. Trading at online brokerages has soared in recent months as investors have tried to capitalize on rising securities markets. But individual investors increasingly are embracing strategies that carry outsized risks...To critics, the push into aggressive trading is the equivalent of doubling down at a casino to recoup earlier losses...

Trading activity at online brokerages jumped in the second quarter as the stock market began rebounding in early March from its deep sell-off. Compared with a year earlier, activity was up 28% at E-Trade Financial Corp. and 36% at TD Ameritrade Holding Corp.
Keep in mind that this isn't money Bernanke is printing. It's money individual investors are taking out of their checking accounts. Once they are "all in," they can't print more. Unless Bernanke cranks up the printing presses, expect a break in the market sometime this fall.

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