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Toe-Dipping Time

05/22/2013

Yesterday, we discussed the latest outlook from the National Association of Business Economics (NABE) and Jeremy Siegel of Wharton, both of whom I respect and both of whom are very bullish about the underlying economy.  It is now apparent that there is more than just quantitative easing by the Fed that is  impacting the stock market.  However, the bulls have already been running down Wall Street for several months now.  Does that mean it is too late to invest?  Take a look at this graph:

Chart of the Day
You can see the current rally is not even an average rally, much less exceptionally strong or long rally.  Of course, force your eyes to notice that some rallies have been less strong and shorter than the current one.  My point is that this graph is interesting but not conclusive.  
Unrelated to this graph is the theory of 15-year stock market cycles.  According to that theory, we have another twelve years of a bull market ahead of us.  Few market strategists put much faith into this 15-year theory, but  it is one more piece of corroborating evidence that the bull really is loose and running.
I have a relative who refuses to take her medicine for high cholesterol.  She appears healthy and active, but her heart worries me, just like the heart of our economy, i.e., the financial system, worries me.  There was a story in The Wall Street Journal recently discussing the return of securitization and, more worrisome, “shadow-banking.”  The needed statin or medicine for the economy is transparency of “shadow-banking.”  Until that happens, my finger won’t get too far from the SELL button for my more “nervous” clients.
But, for now, go ahead . . . stick your toe in!

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