The stock market’s powerful rally from the October lows has definitely impressed most professional analysts and the financial media. Some commentators that were recommending the short side of the market in October, are now back in the bullish camp.
Others, when asked if they have changed their view, point to their macro view of why the liquidity-driven economy and the stock market can’t continue to stay strong for much longer. Of course, these macro views may be right at some point but those hedge funds that follow a macro strategy have had a dismal year. One $15 billion fund was down 11% by the middle of October and many have lost money so far in 2014.
As I mentioned in July’s One Bubble Starting to Burst, I felt that decision by Calpers (California Public Employees' Retirement System) to change its hedge fund strategy was the start of the hedge fund bubble bursting. Their announcement—on September 15—that they were terminating their $4.5 billion hedge portfolio provided confirmation. Don’t get me wrong, as many are run by very smart guys and some are doing quite well, but still, their exponential growth couldn’t last.
The exit polls after the big Republican win suggested that the general public was pretty pessimistic on the economy and the surging stock market was not helping them become more hopeful or optimistic about the future.
The public participation in the stock market is still at very low levels as the crash of 2008 and the financial scandals have kept them away. Even the strong jobs report last Friday is unlikely to encourage new investments by those who are worried about their jobs and haven’t gotten a raise.
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