All Ords 7000 here we come!

Anyone for a little irrational exuberance?
As the All Ords breached the 6000 mark for the first time last Friday euphoric cries of All Ords 7000 by the end of year have rung out. That would imply another 16.7% rise in the benchmark index in about 10 months. This in a year when corporate profits are forecast to slow bad debts are on the rise and housing is still sluggish. Sounds likes a recipe for a nasty correction. Yes most economists are now tipping no interest rate rises for the rest of the year although the RBA retains a tightening bias.

The received wisdom has it that no rate rises or the chance of rate cuts is good news for stocks. I always thought this was a counter intuitve argument since central banks usually lower interest rates in order to stimulate growth. If economic growth is contracting and by implication corporate profit growth slowing which way do you think stock prices should be heading? Of course we are not into an interest rate cut environment yet, we have a strong labour market and putting aside drought affected industries economic growth is robust...at least for the time being.

Can the All Ords hit 7000 by Dec 07? Who knows? I'm certainly not foolish enough to say it can't. However I would find hard to be fully invested at such levels.