Friends
Austerity doesn’t feel too good when it’s your privileges and money that someone wants you to do without. We are seeing in Wisconsin that the austerity movement has come to our shores, and sometimes it is not pretty. This is only the beginning of the discussion as politicians all over the country are going to have to make some difficult decisions which will affect people in very real ways. We may see benefits reduced and folks like teachers, firemen and policemen lose their jobs. It’s not fun when you have to make difficult choices, but governments, just like us as individuals, have come to the point where sacrifices must be made. We cannot just continue to print money to cover our debts (I know it seems like we can). If we don’t stop now, and address our balance sheet, then our dollar is destined to continue its decline and holders of those dollars will continue to look for other alternatives (gold and commodities for instance). Oh yes, austerity is painful. Are we ready in this country to deal with it?
Ok, enough of my pontificating. Let’s get to the markets. The stock market will never go down again(please note the sarcasm). The relentless climb of the stock averages has been very impressive and completely frustrating to the bears, and also the bulls, who are hoping for a pullback to buy some things. Early morning downturns (as small as they have been) have been quickly erased by midday rallies almost on a daily basis. On a technical basis stocks seem overbought, but continue to impressively breach resistance levels. We will look for the 1338 level to hold on the S&P 500 with major support down near the 1327 area. If we can hold these levels we may be able to continue this advance without any meaningful retreat. This would continue to frustrate the underinvested bulls and the wound licking bears.
On the economic front, the inflation numbers reported this week were a little hotter than expected, which will continue to fan the flames of the long-term inflation argument. Will the Fed be able to put the brakes on at the right time to avoid a prolonged inflationary period. Remember, the Fed is trying to create some inflation by keeping rates down and making money easily available. It is a difficult process to balance and only time will tell if they will be successful. The specter of inflation and a falling dollar continues to manifest itself in the price of gold and commodities.
All in all, stocks continue to climb the “wall of worry” as neither global crises nor domestic uneasiness seem to be able to deter investors and traders. We continue to insist it is explained by the flow of money from fixed income (bonds) to equities (stocks). For weeks now we have seen funds flow into stocks and out of bonds. A pullback in the stock market would be healthy and welcome by many traders. Will the market let those who missed it, get in at better prices? We will see.
Have a great weekend everyone. Remember, we are closed for Presidents Day on Monday. We will be back in the office on Tuesday.
