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Addicted Market — 11/02/2014

The market rally in past week is mostly due to encouraging number from corporate America and relatively strong GDP temporally stimulated by defense sector. But it seems investors ignore the time-lag effect of de-QE. Yes, U.S. market is stellar comparing with sluggish Europe and uncertain Asia, and foreign investors are coming for strong dollar and domestic consumers are spending for cheap oil. Market waited the other shoe dropped for a couple of months and finally the removal of landmine enforced the existing optimism. However, the earning from eased liquidity is not an effective indicator of expected performance in tightening credit environment whereas fundamental is selectively improving.

In the course of Fed's exit, it is expected that investors/companies will increase leverage instead of deleverage. Those who had been spoiled by cheap money would act like addicts who are desperately looking for hedonia when facing a more fluctuating ambience in a post-QE era. What reflect in the market are that the beta will ascend and VIX will hurtle up because people are so fond of excessive alpha under loose monetary policy back in past cycle, and so afraid of black swan in "New Normal".

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.