The Meltup Cometh

Bloomberg's chart of the day comes courtesy of proud "TARP 4eva" badgeholder Bank Of America. Basically it says to expect another 40% rally in the markets (yes on top of the 50% witnessed already) simply because America is now the same basket case economy that Japan was in the 1990s (and continues to be today), even though as everyone will attest the connection between economic reality and market stupidity ended long ago. 

According to Bloomberg:

A “melt-up” rally in the U.S. may be triggered by central bankers keeping interest rates near record lows, an economic recovery or an undervalued dollar, Bank of America strategists wrote in an Aug. 26 report.

“Even in economies overcoming credit booms, rallies can be powerful and last much longer than you think,” Bank of America’s Sadiq Currimbhoy, Arik Reiss and Jacky Tang wrote. Should the similarity between the U.S. and Japan persist, the S&P 500 will keep rising, partly because of gains in the dollar, the Hong Kong-based strategists said.

“If there is one persistent similarity between Japan and the U.S., it is they both seem to be fighting a debt problem by producing more debt,” they added. “So, for equity investors, if these relationships were to repeat themselves, the risk for the U.S. market is that like Japan, the stock market ends up with big rallies and then sell-offs.”

Granted the fact that the Nikkei subsequently tumbled to new lows is somehow lost, but courtesy of HAL9000 which only cares for reading and replicating charts, the possibility of the fabled melt up will likely soon become a self perpetuating truth, as everyone starts expecting, nay demanding, another 40% run up in stocks just so that the HFT can extract their last several hundred million for providing liquidity in 4 financial stocks, then call it a day and buy that much needed 8th summer villa in Monaco.


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