ECB holds interest rates unchanged, Cara sees bull market

The European Central Bank became the latest central bank to announce its decision on monetary policy yesterday, and, as expected, it elected to hold interest rates unchanged. The Prudent Investor provides the details.

The ECB's decision follows similar ones by the central banks of Japan and Australia over the past week, and the Bank of England is expected to follow in their footsteps as well next Monday. These decisions come in the wake of increasing signs of a global economic slowdown.

These signs did not stop Bill Cara from writing a post on Tuesday in which he said he believed that "we are still in a bull market". Although he thinks that equity markets are experiencing a "bear cycle", he is more optimistic of the longer term.

For the future, given that inflation is controlled in the U.S. and around the world, and that productivity is growing relatively faster, I truly believe that new investment opportunities presented by the digital age are compelling ones, and I’ll be taking a more bullish stance to equity trading.

Cara did not say why he thinks that productivity growth will outstrip inflation (he says he would discuss productivity in a future article). Even if it turns out to be true, though, would high productivity growth alone be enough to justify a bull run? I would have thought that the economy and financial markets are somewhat more complex than that.

Barry Ritholtz obviously thinks so, as he explains in a post yesterday.

Single vs. Multiple Variable Analysis in Market Forecasts
What "Single vs. Multiple Variable Analysis" means: due [to] its inherent complexity, Market behavior cannot be explained or predicted by merely looking at just one thing -- a single variable. If it could, than you would be able to pick that factor -- Earnings, GDP, Interest Rates, Sentiment or what have you -- and perfectly forecast what's gonna happen next. Even a moderately accurate set of directional predictions would have obvious value.

But you cannot. At least not on a regular and consistent basis over a very long time... The reality is that not only is market behavior a function of multiple variables interacting, they do so imprecisely -- meaning, the exact same (or at least very similar) data sets at different times sometimes produce different results. Its not just one variable, but many dozens...

It would be interesting to see what more Cara has to say to justify the bullish case.