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A Bull/Bear View with a Slight Bearish Tilt

First the Bearish news.

"The wall of worry is huge" argument is simply not true. 
Countries are trying to export their way out of the problem.  But if everyone is trying to do the same thing, who would they be exporting to?   China?  The beacon of the global recovery?  Aren't they the largest exporter in the world?  Aren't they depending on exporting their way out also?  The American Consumer is no longer the vacuum for the worlds exports.  Once this global inventory bounce is over, and it becomes evident that China cannot carry the global baton for consumption, people will figure out that this recovery is going to be one tough slog, one possibly marked by stagnation.  
Speaking of China, why are policy makers so reluctant to let the yuan strengthen?  The numbers show that exports are rising rapidly.  Why won't they let the yuan rise so that they can tame inflation given that exports will buoy the economy?  Why do officials continue to stress that the world economy has not recovered?  This certainly doesn't jive with the data they are publishing.  Also, consider that European recovery has stalled.  Consider that US import numbers haven't confirmed a resurgence in demand for China exports.  Consider that protectionism is on the rise.  This is perhaps why many investors (including myself) are skeptical of China statistics on their exports.  If the Chinese gov't is indeed fudging the numbers, this may backfire on them as they will be forced to either raise interest rates as inflationary expectations creep into the markets, or they will have to "re-fudge" future data to show substantial weakness so that they can maintain rates steady.  I know it's a lot speculation on my part, but the numbers they are publishing coupled with what we are seeing out of other large economies simply doesn't make sense to me.  
...and if you include the rising tide of protectionism, global trade will continue to face significant headwinds.  
Both sides of the Temp employment leading the NFP report.  My opinion is that it doesn't have to be one or the other completely.  But I do believe that temp workers/agencies will be used more as bridge for small increases in demand.  My take is that business owners are not seeing a sustainable recovery.  They see large debt levels affecting the very fabric of our economy and economic recovery.  While jobs will be added in my view, especially in the spring, they will end up being weaker than anticipated. is some evidence that the job recovery will be very weak and thus a key cog in the recovery story with S+P earnings going into the 100s by 2011 as per Thomas Lee of Morgan Stanley is just a bunch of baloney in my view.  Btw, that article is another contrarian sign to me, although on the other side of the argument, he was right about the run up in 2009 so I must give credit where credit is due.  He nailed that call.  But that doesn't take away from the fact that there really isn't an analyst out there (very few, to cover my basis) that say we are revisiting the lows are that the market will even be negative for the next two years! 
Spending remains weak and February wasn't a good month for spending in the higher income bracket.  Whiffs of Ricardian Equivalence again.  While this is one indicator, it does show that spending/end demand remains sluggish.  One thing that wasn't mentioned in the survey but is quite the possibility, is that it is just no longer in good taste to show your wealth, not when there is so much suffering by the lower class.  This sort of phenomenon was also prevalent in the 30s.    
I'm thinking of the implications of doing this.  What happens if the dollar strengthens back up to 90 due to risk aversion?  You're going to have lots of nervous bond issuers who sold dollars and would have to repay those (much more valuable) dollars when those bonds mature.  I guess it doesn't matter for a Chinese company since their currency is fixed to the dollar, but, wouldn't that make the Chinese more resistant to unpegging it?  If they unpeg, the consensus is that the yuan would rise, but what if the opposite happened?  Why would the opposite happen?  Well, because their economy is export based and if there isn't a sustainable recovery due to low export demand, that would force their central bank to keep rates low.   I really don't have a view on this, but it seems that some unintended consequences could arise.  
Small business report from NFIB was pretty bad.  This is the nations main job engine, accounting for an overwhelming percentage of job creation in the economy.  If small businesses don't have confidence on the recovery can we really expect strong job growth in the months ahead?
Ok guys, thanks for cutting down my discretionary spending.  The problems at the state level are very large.  Taxes are going up not just in Illinois, they are going up in many states.  This can't help the S&P estimates hitting $100 bucks by 2011.  

Now for the Bullish.  

Manufacturing continues to carry the US economic recovery.

Labor market has stabilized and points to growth in the coming months.

China and most of Asia continue to point to a global trade revival. 

Spending has been increasing in the US.  Will it move higher?

The Greece situation has officially been declared taken care of.  So this would increase risk taking.  

One very bullish though on the technical side is that the recent rise was on a stable to higher dollar.  So this would show that there is real demand for stocks at this point.

Financials are actually making a run to break out of their sideway range in place since August and are on a 9 day winning streak.  The 3rd such streak since 1990!

Transports have broken to new highs, not to mention the Nasdaq, and several sub indices.  


Overall I'd say both sides have a valid arguments.  But I'm still tilting to the bearish end.  While the market may rally higher, volume continues to decline and there are too many uncertainties ahead.  Shunning risk or tightening stops would be prudent until these uncertainties are taken care.  I believe that the next few quarters will determine which side is the winner.  

Disclosure: No Positions Mentioned