In A Bernanke Market, Comparisons With The 80s Are Like Apples And Oranges

This is another example why I wouldn't be listening to Wall Street.

The Bloomberg chart of the day tries to simplistically associate today's market rally with 1980s.

According to Bloomberg, ``The CHART OF THE DAY compares the Standard & Poor’s 500 Index’s advance since March 9, when the benchmark fell to its lowest level in 12 years, with its recovery from a two-year low set on Aug. 12, 1982. The S&P 500 rose 15 percent for all of 1982 and moved higher every year for the rest of the decade.

``“Investor sentiment today is quite similar” to what prevailed 27 years ago, James W. Paulsen, chief investment strategist at Wells Capital Management, said yesterday in an interview.

``“There’s nothing but doubt” about the economy’s ability to recover from its slump even as consumer and business confidence, retail sales, exports and other indicators point to a rebound, not depression, Paulsen said. The S&P 500 reached its August 1982 low during the second U.S. recession in three years."

But the financial and economic environment 1980s is entirely different than today.

In the past debt levels had not been as disproportionate as today relative to GDP.

Another, globalization and "Reaganomics" has taken off in the 80s. Today, the "Obamanomics" or the growing role of government/s in the economy via a slew of new regulations and welfare programs funded by higher taxes will curb globalization trends and politicize vital sectors of the national economic system which will reduce productivity and returns.

More, the 80s had analog cellphones in contrast to today where internet and digital phones rule.

So it would seem like an apples-to-oranges comparison or simply clustering illusions- a cognitive bias of looking for patterns where non exist.

Importantly, much of today's rally has evidently been liquidity driven as shown by chart above from the WSJ article.

As former hedge fund manager Andy Kessler rightly observes,

``At the end of the day, only one thing has worked -- flooding the market with dollars. By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market."