We may not have gotten the Full Monti in Italy this week; but, we’re geting a bull stampede here and more upside appears almost inevitible. The momentum appears as strong as it was in 1987 when the market went almost straight up 27% between Jan. 1 of that year and April. The DOW and S&P eventually rose to 40% by August of 1987 before losing 41% in the following two months and ended the year down 2%. A friend of mine back in Dec. 2012 actually argued to me at that time, that we were on the verge of something big in stocks. I didn’t believe him; but, he was right.
I believe we’ll likely take out the all-time highs on the DOW & S&P tomorrow, Friday, or within days. As has been said many times, the stock market can stay irrational longer than you can stay solvent. While a lot of this move is due to Big Ben and his strategy of keeping the pedal to the mettle on QE, pending home sales, new home sales, consumer confidence and capital expenditures are all improving. If we have bottomed on housing — as Mr. Bernanke testified today, that’s huge. And, Japan is showing signs of positive growth — which would be a paradigm shift that few were predicting or expecting this year.
When everyone is buying and euphoric, it usually means trouble; but, the upside momentum in stocks right now seems formidable. Who the h… knows how it all ends. As a piece of trivia, stampedes in the Old West were usually started by a lightening strike. Cowboys used to say that the stampedes resulted in clouds of smoke that concealed everything from view. The height of the cattle drives came from the 1850s – 1870s — to the California gold fields and to the northeast form New Mexico, Texas, Kansas, etc., (Chisum Trail) and pretty much ended when the railroads came into existence.
EUROPE GOING THE OPPOSITE DIRECTION OF U.S.
Adriano Bosone, European Analyst for STRATFOR says the Italian election increases the possibility of contagion to other parts of Europe, and puts Germany in an awkward situation as fall elections loom in Berlin. The Italian 5yr bond yield rose in the election aftermath to 3.59% (was 2.94%) in Jan., and the 10yr. rose to 4.83% vs. 4.17% a month ago. These rises won’t help Italy’s deficit which is $2T Euros, 120% of GDP and expected to rise to 132% by year’s end. French unemployment rose to 10.3% last month — its highest level in 13yrs. — high labor costs being a big culprit. Charles Beasley, CEO, NIKKO Asset Management says that there are “lost decades” coming up in Europe resulting from austerity and lack of structural/economic reform. He argues that Europe is the now what we saw in Japan in the 90s.
SEQUESTRATION & U.S. DEBT
The U.S. Treasury Dept. yesterday released official budget deficit totals as of Feb. 2013 — $16.609T. This time a year ago — in Feb. 2012 — it was $15.46T. We added $1.193T in twelve months. We’re spending $3.268B a day. While the pace of debt has slowed — we’re still likely to move past $17T in debt by year’s end. Our annual budget (what we spend is about $4T per year) and we can’t cut $85B? Austerity certainly doesn’t work as its results are on full display in Europe. And, the way these cuts are to be implemented here leaves much to be desired. But, the last “balanced approach” we got from this POTUS (Fiscal Cliff Deal) was $41 in spending for every $1 in cuts. Friday, March 1, high noon — Sequestration officially begins. I expect we’ll get some kind of deal, after it goes into effect. V/R, R.C. Porter.
- Implied Volatility (optionsanimal.com)
- No More Easy Ways to Cut U.S. Debt (blogs.wsj.com)
- What Would The U.S. Debt Be If An Accountant Was In Charge? (cpamerica.org)