"Dow new highs"! Big round numbers and visible chart points are magnets but what else is new?
Behaviors are hard to change....and with this resepct, a healthy appetite for risk could be considered to be a behavior as well. The retracement of the carry trade loss by over 75% (using AUD/JPY) indicates a still healthy appetite out there for....well, just about anything given the looks of the board end of 3rd Q and the start of 4th Q.
I have seen traders question how the market can rally given the fundamentals of subprime damage to the psychology of lending. There are always two sides to a coin, though, or else there would not be a market. Buying power has still come from that "Global savings glut" as Bernanke so cleverly phrased the flip side of our current account defecit. Darn - if all those citizens in new emerging markets would quit saving and learn to spend, that would solve our problems. Is that what he said? Sounded like that to me....LOL
I like Bill Gross's solution: devalue the dollar enough so that AMericans are forced to save since the cost of imports will be exhorbitant. In other words, inflate the debt away but in this case, by letting the currency go into a freefall.
All these scenarios really do not matter. Nothing goes straight up and nothing goes straight down. A trader should only be concerned with the short term inefficiencies and opportunities along the way. As we have seen with the carry trade, when a market becomes overweighted in one direction, there tends to be a shakeout or liquidation spike in the opposite direction. Or, a classic short squeeze....Was yesterday's start of the month rally just such a squeeze in a market that had become too bearish? In other words, was it real or was it memorex? But more importantly, who cares the reason......get back in there and play the game another day.