Last week shares in Australia, Hong Kong, India, Russia, Europe, London, Brazil and New York all hit fresh highs that were in most cases, the best for the past year.
Fuelled by generous liquidity support from central banks (but not the RBA which is the only major central bank to lift rates), the desire for riskier assets is well and truly back in vogue.
Shares and commodities, such as gold and oil, are top of the list.
In the US so broad is the desire for return (echoes of the years before the crash) that shares and bonds have been rising, almost in unison.
But some analysts say there could be an explanation for the rise in bonds in recent months and that’s strong demand for banks for somewhere to park surplus cash that’s safe, but paying more than leaving it on deposit with central banks.
Some US analysts worry that the surge in shares isn’t being supported by retail investors.
The Financial Times reported on the weekend that US equity funds recorded outflows for the seventh time in the past nine weeks, led by large cap funds, according to data released on Friday by EPFR Global.
"One source of concern is that the equities rally has been mainly an institutional affair, with retail investors staying on the sidelines.
"This, say some observers, suggests a “traders’ market” with the risk that at some point this year’s big rebound in risky assets – oil is up 120 per cent from its February low of about $34 a barrel, while US high-yield corporate bonds have generated returns in the region of 50 per cent year to date – will meet a wall of profit-taking."
Other analysts warn that there are strong signs of ‘correlation trading’ in shares, gold and oil and the US dollar.
Investments with high levels of correlation are inherently dangerous and it was ignorance of that fact that saw the fall in US house prices and rising subprime mortgage defaults trigger the credit crunch and then the US and global recessions.
There’s a worry that should sentiment turn in favour of the dollar, or a sudden new crisis emerge that helps the greenback rebound, then shares, oil and gold will fall very quickly and wipe out much of the 60% gain for US markets this year.
But that won’t necessarily be a big negative for Australia or Asian markets.
The AMP’s Dr Shane Oliver says that while markets are "vulnerable to a pause or correction" after the solid gains of the past couple of weeks, that "is likely to be limited".
He said the "economic and profit recovery continues to surprise on the upside dragging stale bears back into the market.
"The combination of the improving economic and profit outlook at the same time that inflation and interest rates are low and so many investors are still underweight shares is very positive for equities going forward and so we expect the rising trend to remain in place.
"Our expectation for the Australian All Ords and ASX 200 indexes to reach 5000 by year end seemed optimistic a few months ago, but it is now starting to look like it is too conservative. 5200 might now be a more realistic target.
"The global recovery is likely to underpin commodity demand and carry trades are likely to pick up further benefiting high yielding currencies such as the $A. A retest of parity against the $US is likely to occur sooner rather than later.
"It is worth noting that the last time Australia’s terms of trade was at current levels in the early 1950s, the equivalent of one Australian dollar then bought $US1.12, a so a rise well above parity over the next 6 to 18 months is a distinct possibility, particularly as Australia’s export prices resume their upswing.
"This will be good news for Australian consumers, as prices for things like cars, electronic goods, clothing and overseas holidays come down, but it will make life very tough for manufacturers and service companies that compete internationally."
So while it will pay to keep an eye on what happens to the current huge rally, especially in the US and European markets, it will also pay to watch closely the flow of economic data from China and other major economies in our region, which will be a better indicator of what our prospects are.
On Friday US shares fell on disappointing earnings reports from Bank of America and General Electric, plus poor consumer confidence figures dampened the bullish moods.
The Dow fell 67 points, or 0.7%, to 9995.91.42, sliding below the key 10,000 level reached on Wednesday for the first time in over a year.
The Nasdaq dropped 16.49 points, or 0.8%, to 2156.80 after a very strong week for tech stocks after good reports from IBM, Intel and Google.
The Standard & Poor’s 500 index shed 8.88 points, or 0.8%, to 1087.68.
Over the week, the Dow rose 1.3%, the S&P 500 1.5% and the Nasdaq 0.8%.
One more US bank was shut Friday, taking the total so far this year to 99.
On Friday regulators closed San Joaquin Bank of Bakersfield, California. It was a small local bank with $US775 million in assets and $631 million in deposits.
Friday, Bank of America reported a loss of $US1 billion thanks to big write-downs and rising loan defaults.
GE meanwhile topped estimates with a profit of $US2.4 billion, but revenues fell a sharper-than-expected 20% as continuing losses in GE Capital continued.
The Australian sharemarket ended down on Friday, but was still up 1.8% for the week, thanks to the rally by resource and bank stocks.
At the close Friday the ASX200 index was down 23.5 points or 0.5%, at 4836.4.
