Bieber or Die

Why are we rallying?


I think there's a significant probability that we end up in a long slow equity grind for the next 18 months with a few minor, by which I mean, sub 5% corrections, but this is all contingent on there being no news/events that can't be discounted -- wars, European political craziness, aliens, etc. The driving force for this rally has zero to do with any changes in the domestic or international economic situation, because there's been no reform, housing has yet to recover at all, there's increasing unrest in Easter Europe (Sup Hungary, plz don't elect a nazi), attempts to stabilize the Middle East (and the horn of Africa) have been generally a failure and Israel is still trigger happy, and yeah the world is still the world and more than all of that nonsense, there's still this underlying dread that we can't meaningfully employ the masses. (Which is a vague thing to say but in the 21st post-mechanical post-industrial economy, what is the use of hundreds of millions of workers?)

BUT, despite all of that BS, there's still a lot of money that needs to find a home, and although treasury yields are pretty steep in the US and Europe relative to the short end of the curve, so much of that is a product of sovereign CDS fears (notice that J&J Corp debt is cheaper than US debt cool bro), that basically, the only option is to dump $$ into equities. This is magnified by an unattractive housing market, which is made unattractive through not only still-high prices, but also extremely punitive mortgage rates.

This is all not terribly interesting and the sort of bullshit you could read on yahoo, but I think what IS pretty interesting in this equity rally is the annihilation of volatility in both Asia and the US. If the world is truly "reluctantly" going along with the equity rally because of simply a lack of options, wouldn't one expect vol to remain bid? Is the world synthetically hedging against repeat catastrophic equity failure in other ways? (Which I guess would be something like long crude, short Euros, long Yen) Is this a super crowded trade and what happens on the unwind?