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1/10/2011

We’re embarking on the real first week of trading (that is when a majority of players are back from holiday) and the word to describe the status of many of the financial markets…RISK.  VERY HIGH UNDERLYING RISK

Since the Fed announced its QE2 initiative and uttered the phrase that it would do what it could to reignite the economy, US equities have been on a one way tear, with the Dow posting about and 11% gain and the “ever so speculative NASDAQ” nearly 30% gains.  QE2 however did not achieve what it set out to do in the Fixed Income market, as a major of those who needed to refinance at lower market rates most likely couldn’t because they couldn’t provide steady income verification or their property didn’t appraise high enough. In fact, even the aggressive buying in Treasuries didn’t stop Yields from rising into year end.  Finally, the US$ was fortunate that the EUROZone counterparts had as much financial trouble as our economy so the Greenback held stable.

The point to stress with all this hoopla (yes, we just used the term “hoopla”) is that economic fundamentals remain quite poor when considering macroeconomic factors.  Real estate remains anemic, (both residential and commercial) and job destruction continues on in the form of outsourcing, resulting in a continued significantly high jobless rate in the US.  So when you hear the media talking about how everyone is allocating more towards Stocks and that Stocks are a great buy and if they dip you need to get in…just remember the amount of underlying incredible risk that exists in this market…especially state solvency risk in the medium term.  Can stocks keep going higher?…of course they can, but last time the Doc sounded the risk alarm it was during the whole year of 2006 and 2007.  I don’t think we need to remind you what happened at the end of 2007.

By the way…HAPPY NEW YEAR