What's Really Behind the Stock Market Rally

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The Colbert Report UMass grad student Thomas Herndon found the spreadsheet error responsible for a critical -0.3 percentage-point error in Carmen Reinhart and Kenneth Rogoff's published average of real GDP growth in the highest public-debt/GDP category.
By Sam Ro

So far, the stock market has avoided the spring slump it has experienced during the past three years. This has happened even despite the deterioration in much of the global economic data.

Art Cashin, UBS Financial Services Director of Floor Operations asked around to see what traders thought was behind this (emphasis added):

Is This The Reinhart/Rogoff Rebuttal Rally? -- Two weeks ago, the financial world seemed to be a much different place.

Stock markets on three continents were sputtering and appeared to be on the verge of a Spring swoon. Gold, oil, copper, and a variety of other commodities appeared to be in virtual freefall. Economic data around the globe seemed to weaken noticeably and universally. Deflation was a key topic.

Now markets around the globe are displaying a new buoyancy. Yields on government bonds have fallen to stunning lows as bidders outdo each other at auctions of what was recently looked upon as sovereign debt with near-junk status.

What has changed things in the last two weeks?

Some point to growing optimism that Italy might finally be able to form a government. Others cite the fact that the G20 appeared to give the BOJ a hall pass on their re-inflation efforts.

A few even point to Merkel slipping in the polls, possible decreasing the power of the "austerity first" crowd.

Some traders, however, think that the new rally really kicked in when news that a graduate student had found flaws in the Reinhart/Rogoff paper on the limiting power of public debt on the economy -- thus casting doubt on that thesis.

As the rebuttal made headlines, markets rallied -- especially in Europe -- as cries that austerity had seen its day came from leader after leader.


Was it really the rebuttal that moved markets? We may never be able to prove it conclusively but the timing seems like a perfect fit. Maybe we should ask a graduate student to look into this.

Cashin is talking about UMass grad student Thomas Herndon, who has basically turned the global austerity movement into a joke.

​(Read about Herndon's discovery here.)


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18 Comments

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warren

These people proposed an absoute number on debt to GDP ratio that says when that number is reached that growth will be affected negatively. They ommitted data and performed poor statistical analysis to come up with that absolute. Debt can never be considered a good thing but there is no absolute number that can predict the demise of an economy. This is a good thing and they were wrong. Maybe some people need to grasp that concept. Crap being deseminated as fact will never solve a problem

April 27 2013 at 2:32 PM Report abuse rate up rate down Reply
bob

I need to replace my P C ,would like a new vercion. What is the name of the Company////. BOB N

April 27 2013 at 11:19 AM Report abuse rate up rate down Reply
modenaro

Sorry, that's not it at all.
Just the "New Normal"
Manipulation......
Manipulation......
Manipulation......
God help those who don't see it coming when this house of cards comes
tumbling down. What will the media say then?
That's anyone's guess. It will be entertaining though, the creativity
today is astounding.

April 27 2013 at 10:59 AM Report abuse rate up rate down Reply
dsh1007155

The "collapse" was the result of pure greed and criminal behavior of a few. Wall St is one big Ponzi scheme.

April 27 2013 at 10:52 AM Report abuse +1 rate up rate down Reply
kevin243

completely ridiculous.....70% of the trading is done by computers, and they don't care about their spreadsheets or errors.

April 27 2013 at 9:23 AM Report abuse rate up rate down Reply
LadyPurpose

The stock market is a non fact based silly institution ruled by fear and superstition. Kind of like religion.

April 27 2013 at 9:11 AM Report abuse rate up rate down Reply
lenders1

I agree 100% with Jams posting enclosed... But no mention on Jeb Bush in 2016?

April 27 2013 at 8:20 AM Report abuse rate up rate down Reply
gdp

Not so facile.

April 27 2013 at 5:32 AM Report abuse rate up rate down Reply
dainiz

Companies have improved their profits but many have not improved their revenue significantly. Cut cost will improve profits but that will help in the short run,. Revenu increase will do it in the long run.

April 26 2013 at 10:36 PM Report abuse rate up rate down Reply
rrshere

pat.........buy puts........or worst, short sells

April 26 2013 at 7:58 PM Report abuse rate up rate down Reply