Have corporate earnings suddenly improved dramatically?  No, they continue to grow nicely, even though the rate of increase is slowing, due to the Law of Large Numbers.  The U.S. economy is still “the little engine that could” and continues sputtering upward.  But, something must have changed to explain this bull market?

Remember this time last year.  We were living in terror of the Fiscal Cliff, another European collapse, and a severe recession in China.  Since then, we somehow avoided falling off the cliff.  Europe calmed down, with bond yields dropping nicely.  And, there is plenty of evidence the Chinese economy will pick up steam.

The terror of the Fiscal Cliff has morphed into terror of the debt ceiling negotiations, but Wall Street believes “the fix is in.”  Over in Europe, Greece probably needs another bailout and Italian bond yields have started increasing again, but Wall Street believes Merkel’s re-election is secure.  In China, the debate is not about recession but whether their GDP will grow 4.5% or 7.5%.  Importantly, it is now clear China is actually revamping its economy, not just talking about it, from an export-driven model to a consumption-driven model, like the U.S. and European economies.

It is often said that Wall Street always faces a “Wall of Worry.”  That is their job, i.e., to be worried.  But, it looks like the worries are being whittled away.  They will never be eliminated, as we must always worry  about the future.  But, Wall Street seems to have lost its fear . . . temporarily.

Of course, if we get sucked into Syria, if Congress prefers a credit downgrade to expanding health coverage, if Berlusconi tries to take Italy alonog down with himself, we should expect a severe sell off . . . and then a gradual recovery . . . again.

Personally, all other short-term worries are manageable at this point . . . except for the elected children in Congress.  After all, it is my job to worry!