Time to enjoy the party

Founder and Publisher of the Switzer Report
Print This Post A A A

Is there nothing that can stop the irrepressibility of Wall Street? For the 10th Friday in a row, the Dow has finished up. Over the week it was up 2.18% and has now wacked on a huge 9.87% since New Year!

Its new closing high was 14,397.07 while the S&P 500 closes in on its all-time high this week. The broader market index rose 2.17% for the week to close on Friday at 1,551.18, and is up 8.76% for the year.

What’s the story?

So, why does the good market news keep on coming?

Well for starters, investors in the USA are not spooked like they were between 2008 and mid-2012 and the VIX, or fear index, which is now a low 12.62, shows that. For the year this reading on market jitters is down 30%! And the seduction for stocks is now extending to smaller cap companies with the broadest US stock index – the Russell 2000 – now up 10.97% for 2013.

Driving this positivity is the very-stimulating policies of the Fed, which are now being copied by the likes of the European Central Bank and, very recently, the Bank of Japan jumped on board.

Now when this plan was conceived it was thought it would create inflation, higher interest rates and the seeds of another crash and/or a weak response from the real economy. The argument was, how can you respond to a global economic problem threatening a Great Depression II with more debt and very loose monetary policy, especially when these were the causes?

Well, the answer was this is what you do – if you can believe the most famous economist ever – John Maynard Keynes, who cut his teeth on the 1930s Crash.
And so far, so good, with economic growth and jobs starting to show up in the USA and China, which is really important as they are the two biggest economies in the global economy. As Bill Clinton argued “It’s the economy, stupid” and that’s what’s driving the Dow into record territory.

The numbers that matter

The US economy is creating jobs with 236,000 turning up in February. The experts tipped only 160,000, which would have been regarded as OK, so the actual numbers were fantastic. The result cut unemployment to 7.7%, which is miles better than the expected 7.9%. The Obama and Ben Bernanke plan is working and that showed up in the recent reporting season and that’s why stocks are soaring.

There is a belief that the Fed will keep on helping the US economy with $85 billion worth of bond buying until unemployment hits 6.5% and inflation is 2.5%. That’s because Ben Bernanke has said he will do that and while he could break this promise, he won’t until the US economy is buzzing with big corporations investing and creating jobs.

The intoxicating monetary music is not likely to stop soon and it is being made even more alluring by better economic news inside and outside of the USA.

Japan got a better growth number after two quarters of a small recession and things are likely to hot up with the new Government set to follow the Obama/Bernanke game plan, which also will drive the yen down.

It’s time to go to Japan for a holiday! I could not have said that over the past 20 years and that’s why Japan is set for an economic pickup. I’m going there in April and the currency’s fall was the biggest lure.

Meanwhile, in China exports were up 22% in February, which can only be seen as a positive for not only China’s recovery, but also the global economy, which it sells to.

These great market times won’t last forever and I Europe will give some reason for a pullback. But we’re in a secular bull market now and so I expect the good times to roll for a few years until that music stops and the proverbial punch bowl is taken away.

But for now, let’s enjoy the party!

Important:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

Also in the Switzer Super Report

Also from this edition

View More Articles