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Waiting for Santa . . .

12/22/2011

Monday, the Dow was up over 300 points.  Yesterday, it was flat.  Today, it looks to gain about 40 points at the open.  Yea–the market has changed direction and will be moving back up??  No–as discussed last week, the trading volume or number of shares bought/sold is so low this week and next, that daily market movements are meaningless.  So–pay no attention this week or next week.

But, what about a “Santa Claus Rally?”  Normally, stocks do rise the last half of December.  This may be because the pessimists have gone on vacation.  More likely, it is because investors are positioning themselves for January, which is the market’s best month historically.  This time, it all depends on Europe.

Jeremy Siegel taught me at Wharton and was economics advisor during John McCain’s presidential run in 200.  He is a nice guy and one of my favorite thought leaders.  This morning, I watched him on CNBC and enjoyed learning that we have very similar forecasts, i.e., that the stock market is spring-loaded for a major bull rally, once the European fears subside.

I’m also more confident that these European fears will subside, after reading an analysis of the Great Depression, which made the case there were two halves to the Great Depression.  The first half can be associated with the 1929 stock market crash and the U.S. economy.  However, that depression was made both deeper and longer by a European banking crisis, creating the second half.  Of course, that is so similar to our current situation. 

But, here is the difference . . . during the first European banking crisis, liquidity was allowed to dry up.  That is clearly not the case this time, with the Fed and ECB flooding the banking system with billions in liquidity.  No doubt–we avoided that fatal mistake!

Bottom Line:  Pay no attention this week or next.  Be prepared for big scares on Europe, but don’t be afraid because this is NOT a repeat of the Great Depression!  I expect to see Santa Claus next year . . .

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