A delightful cartoon that, judging from the "rabbit ears" aerial, was published many years ago in what I believe was the New Yorker Magazine, depicted a gentlemen watching the evening news on TV.

The caption suggests that nothing much has changed in the way that the media has to create an explanation for every "up tick" and "down tick" in the market:

“On Wall Street today news of lower interest rates sent the stock market up, but then the expectation that these rates would be inflationary sent the stock market down, until the realisation that lower rates would stimulate the sluggish economy pushed the market up before it ultimately
went down on fears that an overheated economy would lead to the re-imposition of higher rates”

Is it any wonder that people are confused when the media does not know where they are, let alone where they are going, from one minute to the next ?

Before the market opening today, Bloomberg had an article on the weakness of the DJII futures, which were off 20 points. The reporter quoted a number of individuals who were negative on the markets including one Heinz-Gerd Sonenschein from Germany who, despite the sunny disposition of his last name, was ready to take profits as P/E multiples on future earnings were too high.

By 11.15 am the Bloomberg headline had changed to  "U.S. Stocks Rise to Records on Housing, Confidence Data" and Heinz-Gerd Sonnenschein's comments had been removed. However, my comments on the original article remain. Interesting, how the media has so much sway over world opinion and yet it blows to and fro with the wind. The more things chance the more they are the same.

My comment on Bloomberg follows:

Tony HAYES • 2 hours ago

The DJII is priced at significant discount to its dividend-discount value of 25,300 based on trailing dividends and at greater discount to its value of 31,800 based on the FED's model and trailing earnings.

The comments of Heinz-Gerd Sonnenschein, suggest that he has missed the last 10.000 points on the DJII and is likely to miss the next 10,000 points as well. The reason being is that he does not know where he is and so cannot possibly know where he is going.

As far as the FED is concerned, tapering or even contraction of the monetary base should continue to have little or no impact on the amount of the monetary base that is actually at work.

Of the total U.S. monetary base of just under $4 trillion only $1.35 trillion is at work. The balance is held at the FED by the commercial banks as excess reserves. In short, there is too much money and too little demand for it. Simultaneously, the demand for new and old debt instruments exceeds new supply. Hence, the price of debt is falling, i.e. interest rates. This could well continue for a number of years.

For more detail including essential graphs on this matter which cannot be uploaded directly on to this site please follow the link:

http://www.talkmarkets.com/con...

Tony Hayes CFA 

agbhayes@gmail.com