Let me start with this last year’s stock market. Retrospectively in a few years the refrain will likely be, oh, that was an easy market it only went up. Because [pretty much] it only went up, it has been a very difficult market to stay long in [lots of Hedge Funds couldn’t or didn’t] and underperformed.


So of course the question is: does this bull market continue? The answer at least from this chap is:

parabola collaspe

This is based on empirical data, a true statement. It is likely to be true at some point in the future also. The question again is, assuming that it is true, when? That of course is the question that no-one can actually answer although many will try.

One approach is to elucidate the variables that actually created the bull market from March 2009 through to today. Clearly QE must be on the list.


Also something that should be considered is that in a period of consolidation, the breakout, if it occurs, is substantial and sustained. As can be seen, the consolidation was significant and the breakout higher [for whatever reason] could run a lot farther than many might expect.


Another argument for the continuation is that current valuations are not in that turnaround zone, the P/E still below 20 at 18.


Sentiment fluctuates. Until recently however we have had a number of perma-bears. Some quite recently have flippe-flopped, but there are still enough out there to give the bull some legs.


Interest rates at the short end are going to be held low. This means ongoing credit creation.


Unemployment remains high. This will allow the Federal Reserve to hold QE for longer, and also maintain the low interest rates until the inflation even on the manipulated CPI ratchets too high. However for the moment unemployment will not make any meaningful improvements.

Inflation also remains according to the manipulated CPI ‘low’. Clearly this is false, however until the mainstream start to shout fire, the general perception is that inflation is low will remain.

In summary, these have been the primary drivers of the surge in the stock market. Should they all remain, then there is no reason why the market cannot move higher in 2014.

I will look at the bear case in part II