Blog : Just Ask the Thundering Herd

by Ed Zwirn on November 16th, 2013

With the nomination of Janet Yellen being about the only recent Obama administration initiative to garner widespread support, at least in the Senate, the bulls have gained a commanding position in the stock market, with the only remaining question being how long this latest bull run will continue.

As I pointed out in an earlier penny stock blog, Yellen's elevation can only give a boost to the market. A strong favorite on Wall Street, stocks have gone up at every stage in which her candidacy advanced, with Friday's record close for the Dow Jones Industrial Average so far proving to be the latest chapter of the Yellen rally.

Not only is the Dow up 22% so far this year, but the broader market indices have scored even better, with the S&P 500 up 26%, the NASDAQ up 32% and the penny stock-rich Russell 2000 ahead 31%.

The broad nature of this stock market rally is at once a bullish and bearish phenomenon. Analysts have already begun to ruminate on the return, en masse, of the individual investor, and the evidence bears this out. Contrarians would point this out as an inherently dangerous situation.

But the money being invested into the stock market is money that, for the time being, has nowhere else to go. Bond yields are languishing. Gold is at a four-year low. In short, anybody lucky enough to have enough money to consider investing in stocks is already doing so, an easy call when the alternatives are fetching near-zero or (as in the case of gold) negative returns.

Are we approaching a market bubble driven by intense speculation on the part of everybody from waitresses to farmers to CEOs? Will your grandmother be talking about her latest stock pick even as she serves up the turkey and giblets this Thanksgiving?

In the meantime, the reception being given Janet Yellen, both by politicians and investors, means that stocks in general are going to continue to rise for at least as long as the Fed continues its present monetary policy. This policy, despite what the yahoos are saying, remains an urgent necessity as the government itself imposes harsh cuts on the U.S. economy and lurches between self-imposed crises.

It is often cited as a truism that it is foolish to try to "time the market." But at the same time, an awareness (or at least at educated opinion) of where the market in general is headed is an important part of the due diligence needed for a successful investment strategy. If you don't believe me, just ask the thundering herd.