s m h wrote:
The big boys don't use their own money to buy stocks, they borrow from banks and use bank money. The price they pay for stocks is the price of the stock plus the price of the interest on the loan. When rates are cheap, the loan doesn't cost them much, so they borrow more and spend it, increasing demand, which increased demand drives up prices.
it's not even as complicated as that - when you can borrow money at rock bottom rates, some of it will find its way into the stock market. this is not long term, rock steady money like 401k money.
this si money that will disappear light lightning when the markets start falling. Because people who invest with borrowed money know that they can be destroyed if they can't pay back the loan.
there is no doubt that cheap money has inflated the stock market. To what degree is unknowable.
I suspect today's huge rise in teh vix is people who have invested with borrowed money and need to cut their losses really quickly - so they all buy options at the same time, which drives up the price of the options and therefore the VIX.