Global Markets: High From Wall Street And FED Steroids?

``The capitalistic social order, therefore, is an economic democracy in the strictest sense of the word. In the last analysis, all decisions are dependent on the will of the people as consumers. Thus, whenever there is a conflict between the consumers views and those of the business managers, market pressures assure that the views of the consumers win out eventually.”-Ludwig von Mises, On the Manipulation of Money and Credit

Global markets remain on fire last week with many bourses posting new highs.

In Asia alone, while the gains of the Philippine Phisix had been modest (+1.28% w-o-w for the FOURTH successive week), impressive gains were seen in China’s Shanghai Index (+6.32%, w-o-w), Indonesia’s JKSE (+5.5%), Bangladesh’s Dhaka Index (+4.88%), Thailand’s SET (+4.07%), India’s BSE 30 (+3.63$) and Hong Kong’s Hang Seng (+3.62%). Only Taiwan’s Taiex (-1.26%) and China’s Shenzhen Index (-.98%) were down for the week.

Figure 1: stockcharts.com: ASEAN Bourses On A Streak!

Figure 1 shows of an apparent “choreographed dance” by ASEAN bourses, with Indonesia’s Dow Jones Indonesia in the lead following a strong breakout (pane below main window) to account for a remarkable year to date gain of 46.12% (as of the Oct. 12^th)!

Our Phisix (main window) hovers slightly above its previous resistance (now support) following the latest move to etch a FRESH historic high, which accounted for a year to date advance of 28.22%.

Meanwhile, Thailand’s SETI (middle pane) and Malaysia’s Dow Jones Malaysia (lowest pane) appears be at edge of the same “breakout” routine, with year to date gains of 30.48% and 25.45%, respectively.

Technically speaking, with the Phisix clearly WAY above its 50-day and 200-day moving averages (dma), represented by the superimposed blue and red line, this signifies indications of OVERBOUGHT conditions. Moving averages are the average prices of a security over a defined period, a barometer utilized by trendwatchers to gauge on the health of a trend.

But again since markets don’t move MECHANICALLY, plain momentum and raw emotions can simply prod the Phisix to do an Indonesia and overextend the current trend.

And since markets are behaving in near unison, it does not seem pragmatic to look at the action in the Phisix as a singular metric in determining the ebbs and flows of the present short term trend.

Aside, similar to last week which came COINCIDENTAL to the breakdown of the US dollar trade weighted index, foreign money has turned meaningfully positive but saw a decreased exposure relative to the local counterparts.

What this implies is that aside from the conventional “portfolio” money “IN” flows, we have been witnessing a trend of enhanced participation by local investors.

And amidst the concurrent breakdown in the US dollar is the mirror images-record closes of the Baltic Dry Bulk index (above 10,000- a fresh all time record), Oil via the West Texas Intermediate Crude benchmark (fresh all time record) and gold, which appear to have supported emerging market equities, aside from the “global outperformance” theme which has equally steered US stocks to record highs.

Could it be that the current market activities simply reflects on the recent spike in US monetary aggregates as shown in Figure 2?

Figure 2: St. Louis Federal Reserve: Surging M2 and MZM

According to the St. Louis Federal Reserve, through August, M2 (seen in the left) or a measure of money supply or liquidity as defined by investopedia.com ``money supply that includes M1 in addition to all time-related deposits, savings deposits, and non-institutional money-market funds” surged by 8.6% per annum, while MZM or Money Zero Maturity (seen in the right) also another measure of liquidity as defined by investopedia.com, ``MZM represents all money in M2 less the time deposits, plus all money market funds…MZM has become one of the preferred measures of money supply because it better represents money readily available within the economy for spending and consumption. This measurement derives its name from its mixture of all the liquid and zero maturity money found within the three "M's.” soared by 24.3% per annum!

Are we thus seeing the effects of the combined reliquifications by Wall Street via money market funds or mutual funds that strictly invest in short-term but low risk liquid instruments as US government agencies and treasuries, and the US Federal Reserve?