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Pastimes : The Justa and Lars Honors Bob Brinker Investment Club Thread
VTI 335.99-1.1%Dec 12 4:00 PM EST
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To: joefromspringfield who wrote (6711)11/4/2011 6:27:21 PM
From: marc ultra2 Recommendations  Read Replies (3) of 10065
 
I've been analyzing and racking my brains over the ECRI call since they made it and particularly with the run-up in the market and indications of an improved economy. Until their call I saw this as a 1998 scenario with the market as a screaming buy off the 9/22 retest and then did an about-face with the ECRI call. Bob is also overtly comparing this to 1998 and continues to look for substantial gains.

I'll note the market rallied strongly for about 2 months after their last 2 recession calls before falling sharply so we'd be looking for a Nov. fall if it followed that pattern.

More importantly I looked back at that 1998 and while the market is acting that way, fundamentals are just very different. Fed Funds were around 5 1/4% then and it was aggressive Fed cutting that allowed the market to explode higher. The big issues of the time of Asian contagion, Russian default and then Long term Capital were all able to be taken care of or stabilized.

Fed action is tapped out now except for some marginal moves around the edges. Significant fiscal stimulus is mostly off the table now with the Tea Party influenced House and the emphasis in Europe, the US and elsewhere is more about austerity than stimulus so I don't see this as a normal year 3 of a presidential cycle where you can try to bribe your way to reelection. W was able to use an unpaid for medicare prescription drug program to help re-election and allowed increased spending on top of generous tax cuts. That's no longer viable and Obama has to fight just to continue unemployment insurance extensions and payroll tax cuts. The only new possibility is a payroll tax cut on the employer side which is very minor stuff. The infrastructure part is largely dead already.

Also I just don't see a lasting viable solution to Europe yet. The central problem remains that Germany is the only one with the money to solve the problem and the German people are dead set against their money being used to bail out profligate fiscally irresponsible countries. The ECB which has to be involved is still not all in and that's apparently due to German influence. So yes the market has been following a 1998 pattern and from the final retest then the market shot pretty much straight up to the 2000 highs. For now I'm still expecting a recession and bear in the not too distant future but my conviction is somewhat less and based 3 straight upticks in the WLI and generally improving data I'll lower the probability to 65% now after having lowered it from 87% to 77% last week.
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