Trying To Revive An Economic Corpse

What have we learned? Here’s how we would put it, a four-word lesson that applies to almost everything:

We were on pretty solid ground – at least as far as understanding what was going on in the markets and the economy – up until the middle of 2009. The Bubble Epoque led to the Bust Epoque…just as we thought it would.

But our view was too simplistic. We expected the feds to react…and stocks to bounce. Both of those things happened. But then, the bounce should have ended…and the feds’ massive inputs of cash and credit should have led to inflation…or at least a major sell-off of bonds and the dollar in anticipation of inflation.

You’ll recall, that even we thought this view was too simplistic. The story was too easy to tell and too easy to understand. And so many people were jumping on, we thought the bandwagon would break an axel.

As usual, Mr. Market is being cagey. He’s playing his cards very close to his vest…not giving away too much information.

He’s extended the bounce for so long that most people now think we’re in a new bull market. Just read the views of Barron’s roundtable. Almost all of them expect higher stock prices in 2010. Or, ask the man in the street. He’s convinced that the crisis of ’07-’09 is over…and that the recovery, while it may be fragile, is a sure thing.

Is it a bounce or a bull market? We’ll stick with the bounce hypothesis a while longer; until we’re proven right…or people start laughing at us, whichever comes first.

Market Outlook: Cautious Optimism For The Major Indexes

by: Price Headley
December 28, 2009

There really is a Santa Claus, as far as investors are concerned. Against the odds, stocks moved higher last week by about 2% with the help of decent existing-homes sales and lowered continuing claims. Never mind the fact that those two items were the only encouraging news.

Even more stunning…. volume was actually pretty strong, considering it was a shortened week. It forces the question of whether or not there were that many suckers last week, or if the bulls are actually growing legs again. We contend it’s still a mix of both, and largely depends on your timeframe.

Our Traders Edge outlook on stocks -- a bigger picture view -- is still bullish, identifying the potential that was unleashed last week. That service is effectively recommending staying long, and buying on dips. On the flipside, this outlook – shorter term in nature -- warns of such a dip brewing up within the next few days. (Between the two, timing the market’s ebb and flow can be done with laser-like precision.)

So what happens now that the market busted through its ceiling with a little volume? Does this offer an omen of more upside, or does this just set up a slightly-higher starting point for a pullback? We’ll stick with the latter as far as the near-term is concerned.

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