There can be no doubt that this month’s rally in the equity market has been historic. In less than a month we have rallied over 200 S&P handles. Although over the decades there have been other similarly explosive rallies , they have usually come at the beginning of secular bull market moves when stocks had been previously going down or sideways. This latest rally comes after the S&P 500 had already risen over 200% during the previous five years. The ferocity of the rally at this stage of the stock market cycle is quite unique.

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I get a good chuckle at all the reasons that market commentators use to explain the rally. Although I love reading Zero Hedge, his fascination with attributing the rally to Jim Bullard’s comments about potentially pausing the tapering of QE perplexes me.

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Yes I will admit that Bullard did stop the market’s swoon on that particular day, but his opinion about pausing the tapering was quickly refuted by other Fed officials and then to top it off, the Fed actually went ahead and completely wound down the QE program. How could Bullard’s off handed remarks be responsible for this rally? The answer is of course is that they aren’t.

Then there is the group of dyed in the wool bulltards who are quick to point out that equities are rallying so hard because the fundamentals are so great. Really? And then how do you explain the 150 point decline during September? The outlook was bad then, but somehow it miraculously took a 180 degree turn in the space of one month? Although these perpetual bulls are now contributing to the rally with their confirmation bias strategies, they were not the reason for the sudden turn in the middle of October.

I find it amazing that everyone knows the answer as to why we have rallied so hard, but no one wants to admit it. So at the risk of saying “He-Who-Must-Not-Be-Named’s” name out loud, I am going to tell you why we have rallied so hard during the last month.

But before I do, let me ask you something. If you had an order to buy billions of dollars of equities, would you announce it to the world before you started executing? Of course you wouldn’t. You would first buy all you could.

The recent move by the GPIF (the Japanese Government Pension Investment Fund) to dramatically increase their equity allocation was much more of a game changer than most participants admit. The GPIF has a lot of stock to buy…. So although the announcement of the asset shift didn’t come until the end of October, there is zero chance that the GPIF did not execute in the week or two preceding the actual press release. At the time, I remember commenting that there was a big mysterious buyer who refused to let the market decline. I didn’t understand why he was so aggressive, but I recognized that someone big was getting in a lot of stock.

It would be extremely naive to think that the Japanese financial authorities announced their intentions, and only then, did they start buying. No, the rally off the lows was the result of the GPIF wading into the market, buying stock with both fists.

The Bank of Japan’s decision to increase their QE then threw gasoline on an already raging fire. And then finally the great price action has emboldened those of bullish persuasion to climb aboard for fear of missing the next great bull market. All of these factors have come together to create a perfect storm for a stock melt up.

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But I question how wise it is to jump on board this train.

As for the GPIF’s buying, although they have indeed pushed the market higher, their influence will be waning as the order is filled. Does it really make any sense to try to front run the GPIF after they have already pushed it 200 S&P points higher?

And as for the Yen carry trade – how long before the rest of world voices displeasure with the aggressive Japanese actions and causes a shakeout? The Yen cannot continue falling 0.50% or 1% a day without repercussions. Eventually the rest of the world will follow in their QE, but the first step is going to be condemnation. So far we haven’t seen any real push back. But it is coming. And when it does, it is going to shake out the recent weak Yen shorts.

Right now everything seems pretty rosy for the stock market bulls. But the rally has been driven by aggressive Japanese actions. Although the bulltards will come up with all sorts of other reasons why stocks are rallying, make no mistake about it – they are rallying because of the Japanese. Their aggressive buying set the tone and has started a stampede into stocks.

I am actually taking a small short position up here. The upward momentum is fading, everyone is bullish, and the risks are quite high. I am lonely in this bearish view, but that’s how I like it.

I know all the bullish reasons why stocks have to rally… But whenever “knows something, no one knows anything.”


Positions

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