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7/12/2011

An odd state of affairs in US Stocks…to say the least.

As we mentioned in our last report, the recent über exuberant rally in US stocks that sent the major indexes up in the area of about 8% in only just over a week of trading was suspect to say the least.  Bullish pundits quickly jumped on the short term Greek budget package as the catalyst to the rush to buy stocks, but again, as we mentioned last week, much larger economies such as Portugal and Italy posed financial problems as well.  These problems took center stage in yesterday’s trading activities as the EURO broke under the 1.4000 mark given uncertainty in the Italian Fixed Income market.

So why did Stocks rally so intensely around the 4^th of July holiday period? Was the nearly double digit move in Equities a well needed bubble cushion to ease price volatility in the face of continued European debt issues, high unemployment in the US, not to mention the uncertainty regarding budget negotiations in the US as the clock continues to click closer to August 2^nd??  But what does a bubble cushion mean…or more simply put, where is true fair value for stocks given the intense global macro issues and the phantom rally that has transpired?  Yesterday’s move which sent the Dow Jones down to the 12,500 mark seemed extreme, however 12,500 is still about 6% above the recent lows set during more normal trading conditions back in June.

Well…we’re in the camp of voicing concerns over air in the market…keep an eye on corporate earnings over coming days and of course budget talks around the world.