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What's Not To Like?

Daily State of the Markets
Wednesday Morning - March 14, 2012

Good Morning. I continue to believe that the change in the market's character we witnessed from last fall to the beginning of this year was one of the most confounding, yet impressive shifts I've seen in my more than 25 years of managing money. In a matter of a month, the stock market morphed from a violent, unforgiving beast - a market that many market pro's had called the toughest they'd seen in 30 years - into an optimistic, glass-is-completely-full, energizer bunny that just keeps going and going and...

It is safe to say that more than a few players in this game missed the change in character and in turn have missed out on the majority of this year's joyride to the upside. Apparently this includes some mighty smart folks who manage tens of billions of dollars. You see, as of the beginning of March, the average hedge fund had gains that were less than one-half those of the S&P 500 (+3.2% vs. +8.59%) according to Hedge Fund Research. So, don't feel too bad if you came into this year thinking that capital preservation was going to be the key to the year.

To be sure, this group included me as any "discretionary" money I manage (meaning accounts where I arbitrarily decide when and how much I'm going to invest without the use of systems, models, or trading rules) definitely was not in the game early. While I did write about the changing mood of the market in early January on more than a couple occasions, I too saw the risks and the dark clouds. I too bought into the uber-negative macro view involving Greece, Europe, China and the collapse of the global banking system. But as I've said a time or two hundred, THIS is why I depend on market models to guide my investing.

Was I excited about buying on December 19th and again on December 27th when my systems told me to? Uh, no. And because I could see all the negatives that were sure to keep the market in a violent trading hell for eons to come, I put on the most conservative positions I could find. You see, I won't ignore a buy signal from my systems, but I don't have to like 'em either.

But what a difference a couple months makes, eh? Just this week, I've been asked not once, not twice, but three different times if I am planning to use those triple-long leveraged ETF's anytime soon. Thus, I'm guessing that the mood amongst a great many investors is improving.

This brings me to my point this morning. While the clouds on the horizon looked ominous near the end of the year, it now appears that spring has sprung from a macro point of view and that investors have indeed survived the winter. Instead of a horrific storm brewing due to Greece and the fear of bank collapses, we are now being treated to the sunshine, daffodils and daisies of improving economic numbers and receding fears on the banking front.

If I take a step back from the flashing headlines and the blinking screens and look around at the market landscape, the question that comes to mind is, what's not to like? Seriously, consider the fact that neither Europe nor the global banking system imploded when the big, bad "credit event" in Greece actually occurred. Consider that the ECB seems to have found a solution and that rates across Europe are moving down. Consider that the economies of Europe are actually doing a bit better than had been expected at this point in time. Consider that the U.S. economy is growing and not sinking into the abyss as the likes of ECRI would have us believe. Consider that the U.S. economy has been creating jobs each and every month for something like 21 months. Consider that the housing market is even starting to improve. Consider that the Global CLI's (Composite Leading Indicators) are improving. Consider that interest rates and inflation are low, and that there is cash on the sidelines. Again, from a big-picture perspective, what's not to like?

Sure, stocks are extended and a pullback to test the recent breakout would be normal right about now. But as I've been saying for a while now, unless there is a fundamental change afoot (which we are always on the lookout for), the bulls should be given the benefit of any doubt in here. After all, what we're seeing here is (a) an improving environment, (b) a fair amount of performance anxiety amongst the hedgies and (c) some good old fashioned upside discounting. So, I'll ask one last time, what's not to like?

Turning to this morning... Asian markets were mixed as China's Premiere spoke of reforms and the idea of keeping a lid on property values while European bourses are up nicely this morning. However, here in the U.S. the futures are flat as traders digest yesterday's big gains. It is also worth noting that Gold is being smacked around pretty good in the early going with futures down more than $41.

On the Economic front... The government reported that Import Prices for the month of February rose by +0.4%, which was below the consensus for an increase of +0.6%. Export prices rose by +0.4%, which was above expectations for +0.2% as well as last month's level of +0.2%.

Thought for the day... "Being ignorant is not so much a shame, as being unwilling to learn." -- Benjamin Franklin

Pre-Game Indicators

Here are the Pre-Market indicators we review each morning before the opening bell...

  • Major Foreign Markets:
    • Australia: +0.90%
    • Shanghai: -2.63%
    • Hong Kong: -0.15%
    • Japan: +1.53%
    • France: +0.70%
    • Germany: +1.11%
    • Italy: +0.96%
    • Spain: +1.12%
    • London: +0.33%
  • Crude Oil Futures: -$0.26 to $106.44
  • Gold: -$41.60 to $1652.30
  • Dollar: lower against the euro, higher vs. yen and pound
  • 10-Year Bond Yield: Currently trading at 2.178%
  • Stock Futures Ahead of Open in U.S. (relative to fair value):
    • S&P 500: -0.51
    • Dow Jones Industrial Average: +3
    • NASDAQ Composite: -2.1

Positions in stocks mentioned: None

For more of Mr. Moenning's thoughts and research, visit

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