Stock Market -- Some Thoughts

This cyclical bull market, unfolding since 3/09, has been one of the
most powerful seen over the past 100 years. The leading indicators
for the economy and for earnings recovery have surged, and
suggest that the early phase of an economic turnaround will be far
stronger than most folks expect. It may be the case that the
recovery is due entirely to massive easing of monetary policy and
a large fiscal stimulus, but that would be to deny that the economy
has self-recuperative powers inherent in deep pent up demand
and empty product pipelines. Not a wise denial.

A century of market history involving bona fide cyclical advances in
the wake of deep financial and / or economic crisis suggests cyclical
recovery averages nearly 50% over the first 12 months from market
trough and can hit nearly 120% as occured over 1932 - 33 in the
wake of the Great Depression. Since Mar. '09, the SP 500 has
advanced by roughly 60%, and so it stands only behind 1932 - 33
in a 12 months out context. Moreover, the big advance over the
1932 - 33 surge was interrupted by a deep and scary correction. So,
there is risk, especially when you consider that the p/e multiple is
now not at all low on early recovery stage earnings potential.

In my view, a 60% shot up over 6 months time has earned the
market a vacation if not a correction of consequence. As readers
know, I turned bullish on the market's potential in Dec. '08, did not
give up on it over Jan. / Feb. and wound up seeing the bottom as
coming over Mar. / May ' 09, which I judged to be about 6 months
ahead of the decisive positive turn of earnings. So, I have done ok
with this market. I also understand that there could be plenty of
positive earnings surprises ahead when Q3 reports come out in
October, and at least some players no doubt have this very idea in
mind as the market is pushed higher. But, being a conservative
fellow, I think a 60% move is a very healthy down payment on
recovery. Acknowledging that I could be early with a cautionary
approach, I leave the field to the bulls for the next 6 weeks. In the
meantime, I have continued to trade long Treasuries with leverage
in the interim and am not hurting for profits.

I plan to relax and enjoy the autumn weather.