The first wet blanket created uncertainty, and the stock market hates uncertainty.  Historically, the market rises in November and December following a Presidential election, and it certainly did last year as well.  Since 2008, investors have taken out almost $587 billion from stock mutual funds.  That shifted after the election, and it is estimated that over $50 billion has flowed back since then.  That is a very bullish sign!

The other two wet blankets were more important, as they posed systemic risks, i.e., an actual risk of collapsing or seriously damaging world financial markets.  But, even those wet blankets are beginning to dry somewhat.  Just as you cannot yell “wolf” too many times before losing credulity, investors have seen the fiscal can kicked-down-the-road so many times that they are losing their fear.  Last week’s wise decision by the Republicans to kick the Debt Ceiling can another three months down-the-road is an example.  The market was expecting that!  I am more optimistic that this impasse will be broken.  The market will rally stronger, no matter whether the Republicans or Democrats “win” the struggle.

However, I’m still worried about the European financial crisis – but less worried – for now.  The European Union  (EU) has been held together valiantly by Angela Merkel and Mario Draghi, head of the European Central Bank.  His job is safe.  Her job depends on her re-election in September.  For that reason, she cannot do much more to re-build the Union until the fourth quarter.  Until the budgetary authority is taken from individual nations and centralized into the EU, we are “wallpapering over the hole in the wall,” but that acceptance by each nation, in some face-saving format, is coming.

Historically, the U.S. stock market sells about 15 times the earnings estimates for the next 12 months.  Today, it is selling for only 13 times, which suggests substantial upside . . . for awhile.  We may be seeing the backside of the Bear . . . for awhile.