Good morning. At this time last year, the bears were feeling pretty good about themselves. Although stocks were actually rising, our furry friends were fairly confident that the eurozone was going to implode and drag the rest of the global economy down the rabbit hole with it. There were worries about Greece, Spain, and several little countries that I don't recall. There were worries that France would eventually succumb and that the rate contagion would see no end. To hear the bears tell it at that time, it was just a matter of when, not if stocks were going to get creamed again.
But a funny thing happened on the way to the disaster - it just didn't happen. Super Mario pulled out the ECB's bazooka and threatened to fire it. And in the end, the mere threat of bond sellers being nuked by Draghi's ability to buy an almost infinite amount of bonds was enough to squelch the impending doom. To be fair, this didn't happen without the usual summer swoon, of course. But hey, what else were the math whizzes and their algos expected to do in May?
Next, the endless talk of doom and gloom was enough to create another soft patch in the U.S. economy. This, coupled with the fact that China was experiencing a similar economic fate, caused the bears to once again beat their chests and pronounce an almost certain end to the bull market in stocks that had been in effect since 3/9/09.
But, if memory serves, the projected economic debacle failed to materialize on either continent. And with the Bernanke cavalry talking about getting ready to ride again, well, the bears were once again forced to retreat to their dens and lick their wounds.
Then came the "fiscal cliff" fears. The thinking amongst the glass-is-at-least-half-empty crowd was that the President wouldn't budge because of his election victory and the Republicans would wind up pushing the economy over the "cliff" and into recession. Conservatives said it was a small price to pay for the budget reforms that had to be occur at some point in Washington. Although the fears were good for a garden-variety correction, we now know that the fiscal cliff was avoided and the economy continues to chug along (albeit at a pace that no one except a bond holder is happy with).
As it became clear that there would be no cliff dive and no self-inflicted recession, stocks once again began to rally in earnest. But before you could count up the zeroes needed to write the number 16.4 trillion, the bears, who are nothing if not persistent, began to pound the table about the next problem - the debt ceiling.
The bear camp was quick to promote the dark side of the issue, suggesting that the nasty Republicans would refuse to yield and force yet another political showdown in the nation's capitol. The thinking was that conservatives would effectively hold the economy hostage by demanding spending cuts before approving an increase in the debt ceiling. This would, of course, lead to a shutdown in the government, which, in turn would undoubtedly produce a 2008-style meltdown in the stock market.
To be frank, I will agree that chalking up more than $1.25 trillion in debt each year for the past four years does seem a wee bit irresponsible. And I will also concur that somebody in Washington needs to get their heads out of their re-election campaign stats long enough to do something about the problem. And yes, I do think that the budget issues need to somehow, some way be addressed.
Just this week, I was told by not one, not two, but three of my buddies in bear costumes that I should be selling into this year's rally. I was told that the move can't last and that I should be "buying protection" with puts on any long positions and/or raising significant cash. Oh, and I was told that the current move has no justification in "reality."
Yet, once again, the fear mongers would have caused anyone drinking the dark colored Kool-Aid to miss out. Once again, those focusing on the negatives failed to conceive of the idea that the Republicans might be sick of getting their butts kicked and as such, maybe shutting down the government wasn't really a good idea after all. And sure enough, when word came out on Friday that the Republicans were planning to raise the debt ceiling for another three months, stocks rallied once again.
My primary point this morning is that those still looking for the next big problem and playing for the 2008 bear to resume have failed to capitalize on a pretty decent move. According to my trusty calculator, the S&P 500 has advanced 9.8% since the middle of November and has moved up to a new bull-market high in the process. And as my research staff informed me on Friday, the S&P is now only about 6% away from its all-time high.
To be sure, stocks are currently overbought, our sentiment indicators are starting to creep up toward the danger zone, and the cycle composite we follow says it is time for some corrective action. And to be honest, I wouldn't be surprised to see stocks pull back in the near term in order to "digest" some of the recent move. But the bottom line is that the trend is your friend right now. That is until the next big worry comes along, of course.
Turning to this morning ... While stocks were mostly higher around the globe on Monday, the current readings on the overnight markets are modestly lower. Disappointment over the latest move by the Bank of Japan hurt sentiment a bit in Asia. However better than expected ZEW data from both the eurozone and Germany is stemming the tide. Traders are also bracing for some big name earnings reports today with Verizon, DuPont, and JNJ reporting before the bell and then Google, IBM, and Texas Instruments will report after the closing bell today. Finally, the fact that the President failed to spend much time on the debt and/or deficit in his inauguration speech is giving pause to those following the debate.
- Shanghai: -0.57%
- Hong Kong: +0.29%
- Japan: -0.35%
- France: -0.19%
- Germany: -0.42%
- Italy: +0.64%
- Spain: -0.28%
- London: -0.03%
- S&P 500: -2.58
- Dow Jones Industrial Average: -20
- NASDAQ Composite: -1.09
"How to make God laugh. Tell him your future plans." Woody Allen