In my July 2 column, I said it was time to start buying stocks again. The bottom in stocks turned out to be that very day, and the S&P 500 now stands about 8% higher.
There are a lot of reasons. Some I expected -- and one comes as a beautiful surprise.
The centerpiece of my buy recommendation was the improvement in the debt situation in Europe. As July has played out, it's only gotten better, with European banking regulators having completed stress tests of 91 European banks, and only seven of them failing.
I've also been saying for several months that once the oil spill in the Gulf of Mexico was brought under control, stocks would rise because a major psychological negative would have been removed. It looks like BP (BP) finally has a lid on the monster, and it seems to me that bleak mood of the last few months has started to brighten.
Here's the good news I never expected. Are you sitting down?
Last week, three Democratic senators publicly advocated extending the 2003 Bush tax cuts scheduled to expire at the end of the year. That's right. Three senators from the political party that since 2003 has bashed those tax cuts as a sop to "the rich" have suddenly decided that it's not a smart idea to let tax rates go up when the economy is as weak as it still is.
These three bright fellows are Evan Bayh (Ind.), Kent Conrad (N.D.) and Ben Nelson (Neb.). All honor to them for having the political courage to do the right thing for the economy, even if it means going against the conventional wisdom of their party.
News of their conversion broke the evning of July 21. The following day, the S&P 500 index gained 2.3%.
Here's the logic behind Bayh, Conrad and Nelson's decision.
First and foremost, they're thinking about jobs -- and with the unemployment rate at 9.5%, everyone in Washington ought to be thinking the same thing. Bayh, Conrad and Nelson understand that the prospect of higher taxes on "the rich" next year is holding back job creation.
Here's why. Take my little company, Trend Macrolytics. It's a small firm, with just two employees -- me and one other guy. Since 1992, companies like mine with fewer than 10 people have been responsible for 117 million new jobs. That's 38 million more jobs than were created by big companies with more than 1,000 people.
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