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According to this article at Bloomberg, the all clear has been sounded:
Apparently, it's what all the cool kids are doing so get in while the getting is good. Wouldn't want you to miss anything. The article lists a few positive indicators, which are indeed fairly easy to find right now, and voila, a headline of All Clear! Was that little dip what the new kids are calling a correction? Seems like they were harder back in the day.
Simple analysis such as this is why investors keep getting burned. You can't just look at a series of indicators that all look good and assume they'll stay good. Yes, the February ISM was at 61 and that is a darn good number. History also says it is about as good as it gets so what happens when it inevitably falls? Yes, swap spreads indicate little credit market stress right now. They looked good in 2007 right up to the point when they didn't. Yes, junk issuers are able to sell anything right now for record low yields. They were issuing them hand over fist in 2005 and 2006 as well. Doesn't that make you want to run out and buy a bunch?
Risk is about the future, not the past or the present. We can't predict the future but it is exactly when things look the best that we should be thinking most about what could go wrong.
The potential risks I see are not insignificant. The European debt situation is going from bad to worse and surely won't get any better with a rising Euro. Inflation in the US is becoming a problem and it already is in the UK where stagflation is making a comeback. Ben Bernanke can bury his head in the sand of the Middle East if he wants but oil and other commodities are rising because his policies are driving down the value of the dollar. What does it say about the future of the US economy when the dollar is falling against the Pound, the Euro and the Yen? Those engines of economic growth aren't exactly hitting on all cylinders either but the currency market believes the US is the real clunker.
The other clear and present danger is Japan. I find it amazing that Japan funds saw massive inflows last week. The cross currents from the earthquake, tsunami and nuclear issue are impossible to figure out. Will capital flow back to Japan and keep the Yen rising? That doesn't sound good for the assets that will have to be sold to fund the repatriation. Will US Treasuries be on that list? Or will the G-7 and the BOJ be successful in driving down the value of the Yen? Is another dose of central bank liquidity what the global economy needs right now? Aren't emerging market countries already trying to slow capital inflows? Anyone who thinks they've figured out what the Japan disaster means for the global economy should have their head examined.
Yes, it's clear now and the sun is shining but there are clouds all across the horizon. Carrying an umbrella while the sun shines only looks foolish until it starts to rain and everyone else is looking for cover.
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