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An exuberant Stock market is just what Bernanke had in mind when announcing zero interest rates for years to come.

Yes, last Friday’s job report was a nice surprise, but not really a surprise to the Doc and his faithful readers.  We mentioned the likelihood of a couple of OK jobs reports to end 2011 and start 2012. Coupled with the perky employment numbers last week was some positive progress in the ISM survey reports as well….and the result of course was Stocks continuing to push higher into this new year.  To put things in perspective however, what the recent run in stocks is more a result of is the zero rate or negative real interest rate policy established by the Fed.  As we mentioned in last week’s report, this policy would help keep investment $s flowing into risky assets spurred by the quest to achieve positive returns…and this is simply a horrible policy that is rooted in short-term bubble creating objectives with long term ramifications of causing, or should we say, adding to massive imbalances.

Enough of the negatives for now and let’s try to look at the glass half full somehow.  The positive at this juncture would be for continued progress on the jobs creation process, where another robust number and notch down in the unemployment rate would actually start to get the Doc’s team to raise an eyebrow.   Unfortunately this is not a likely scenario.  Hey, the bottom line to all this hype about an economic recovery gaining momentum is that it’s all nonsense unless the markets return to a normal yield curve that depicts significant positive yield…and that means the Fed raising rates.  Until this occurs all you have is a lot of hot air.  This hot air could push stocks higher, but remember what happened in 2001, and 2007….the air releases and the fallout is ugly.  Bubbles, bubbles, bubbles…is there no other way?  You bet there is.


Stephan Kudyba (MBA, PhD)                      THE MARKET DOCTOR


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