Why:
(1) Relentless European problem seems to be cooling off for the time being with the aggressive ECB €439b "Wall of Money" offering 1% loans to banks for three years, which allows them to either park it or buy sovereign debt currently yielding 5%+. This takes the heat off of both the troubled banks and the indebted nations. Although Europe still must contend with fiscal austerity and all of the attendant political problems, and must try to negotiate some kind of treaty compromise to mitigate future problems, this ECB form of monetizing debt should remove this aura of risk for a few weeks or months.
(2) Statistics on jobs and retail sales are showing some slight improvement in the US, as opposed to data from the fall that seemed to show that we were slipping into a 2nd dip.
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| One year of SPY (account at TDAmeritrade) |
Negatives:
(1) The potential for truly bad news is always there, capable of sending markets down 10% in three trading days. A bad day can unwind this.
(2) Data on US economy are fickle from week to week - one week it looks good and the next it looks bad. Now it looks better, cheering traders, but ...
(3) I still firmly believe that the US economy is severely threatened in the long run by gutless monetary and fiscal policy, which has the throttle on the floor with massive deficits and relentless monetizing on huge scale, and this is the only thing producing our anemic 1.5% real economic growth. I have no faith at all in the long-term strength of the U.S. economy and even less in our political leaders, from either party, who are currently gutting my kids' Social Security to prepare for the 2012 presidential elections. I consider this trade because I think the markets will be bullish for a few months until the reality of our long-term economic status truly registers.
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