Grading on a Curve

 “We do not target the level of stock prices.                     That is not an appropriate thing for us to do.”

                                    Fed Chair Janet Yellen

 It’s the equivalent of social passing or grading on a curve. While the stock market is breaking new records, its recent performance is not a reflection of reality.

As Larry Fink, chairman and CEO of BlackRock, told CNBC’s “Squawk Box,” “I don’t think we have enough evidence to justify these levels in the equity market at this moment.” Buybacks

He said the recent rally has been driven by institutional investors covering shorts (i.e., hedging bets that stock prices would fall), and not by bullish individual investors. In fact, he noted that outflows in mutual funds show that individual investors are becoming squeamish about stock prices.

Institutional investors were short going into Brexit, but are recalibrating their portfolios, Fink said, given that the Brexit aftershock has not been as long-lasting as expected. While some may have been concerned about the economic impact of the United Kingdom voting to leave the European Union, ultimately its impact on markets was muted by the knowledge that Brexit would most likely keep the Fed from increasing interest rates anytime this year. 

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To the Back of the Queue

If I go there will be trouble
And if I stay it will be double
So come on and let me know
Should I stay or should I go?

The Clash                            

Maybe it was the fear of Britain being overrun by immigrating Turks.  Maybe Brits had enough of being told what to do by elitist policy makers in Brussels.  But Great Britain’s vote to leave the European Union was also a rebuke of President Obama.

You may recall that President Obama announced on his recent visit to the UK that if Brits voted to leave the EU, the UK would be moved to “the back of the queue” for trade deals.  Maybe he’ll call his new policy with the United Kingdom “trading from behind.” EU

The comment didn’t endear him to British voters, but our president wasn’t exactly an anglophile to begin with, having confessed to removing the bust of Winston Churchill from the White House.  To our knowledge, he hasn’t replaced it with a bust of Che Guevara, but he’s treated Iran’s mullahs with more respect than he has our friends the Brits.

Perhaps after watching the Dow Jones Industrial Average drop more than 500 points during the early minutes of trading, President Obama’s tone was more conciliatory on Friday, as he said, “The people of the United Kingdom have spoken, and we respect their decision,” adding that, “The special relationship between the United States and the United Kingdom is enduring.” 

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