A New High, But No High Fives

On March 6, the DOW industrial average broke its all-time high set six years earlier in October 2007 (14164). At least one important economic indicator says the great recession is over (March 6 close 14253).

But, there were no high fives among the traders and mixed views among the analysts as to the depth and likely life of this rally. It began on March 9, 2009 when the market hit its bottom of 6547, more than 120 percent below the 2007 high.  Four years is a long run for a bull market.

The cautious reception for this record is well-deserved.

• Much of the exuberance is driven by Federal Reserve action.  Bernanke’s ability to hold interest rates at rock bottom levels appears to be reaching its limits.  Is there two years left, one or less?
• The rally has run well ahead of the base economy, which continues to recover, but at a much slower pace.
• The rally has trusted that the European Central Bank and Germany can manage the continental debt crisis.
• The rally appears confident China will continue its managed growth, while avoiding a military anxious to show off its new hardware.
• The rally, like many Americans, now ignores the gridlock and mostly irresponsible fiscal politics in D.C.

In general, the rally in its long duration has avoided a multitude of black swans. Many believe it will keep running.