The DJIA slices through the key level of 12,000 like Swiss cheese. The S&P/TSX takes out major resistance of 14,000 as if it was hardly there. Corrections are sideways to fractionally lower. This bull leg has consistently ignored key psychological round numbers as the tidal wave of liquidity desperately searches for a home. Broad based 30+ month recovery highs are being recorded on most major indexes - much to the consternation of those who are under-exposed or perhaps short the market. North American corporations are wrapping up a stellar record earnings reporting season. Corporate dividend yield gaps continues to widen to record levels as compared to the pittance the Bank of Canada or Fed offers investors.
Jim O'Shaughnessy (O'Shaughnessy Asset Management) noted this week that, "The first time the Dow Jones crossed 12,000 it was 2006. At that time, it had a P/E ratio of 23x, we now have a P/E of 14x to 15x." OAM have been table pounding bulls throughout this run. I guess this business is not algorythmic rocket science after all?
As economic & financial conditions continue to improve it is getting increasingly difficult to find bearish indicators or negative signals. From a contrarian standpoint - Dr. 'Doom' Nouriel Roubini did the 180 degree bullish reversal on American equities this week after the S&P has doubled which may make a few staunch bulls uneasy. Bank of American reported that investors are 67% 'overwieght' (aren't we all?) the S&P/DJIA and the most bullish in 10 years. VIX volaitility is getting dangerously low. Fannie Mae will have to contend with $5T of residential spring time refinancings - which will be quite a rabbit to pull out of their hat! 5 and 20 moving averages are pulling significantly away from the all important rising 200 ma's. That is a 'gap' that eventually will be filled and tested. And the Leaf's are starting to win?
In the US, the Sanofi-Genzyme saga ends in a $20b merger - the 2nd largest in bio tech history. Defense Contractors 'contracted' with the news that Obama intends to make major defense budget cuts. Home Builders continue to strengthen in the hopes the worst is over in the residential sector. Almost every stock with international multi-national exposure continue to lead this very impressive charge back to all-time high territory. Ownership posturing continues with the pending merger of the NYSE and German Bourse - with a potential renaming to the 'Big Bourse!' It is a move which I am surprised the firing on all cylinders 'Fatherland' has made.
In Canada, I look forward to the TSX-LSE merger debate by the political types. I can't wait for their interpretation of the 'national strategic importance' issue and the 'net cumulative effect' which this concentration of interests brings. In my way of thinking we will be looking at less choice and less competition which is never good. I would certainly think a TSE-Heng Seng merger would be much more preferable diversification option - especially considering that Hong Kong is now the source of 60% of all IPO financings.
As high tide liquidity washes upon our shores - a return to the Oct '07 monthly closing high of $1.055 Cdn appears to be in the offing. Internally the TSX is rotating from selected Agra and Material stocks into Financials and Transports issues. Most Canadian Banks have registered new record highs in the hopes of the much anticipated dividend increases. Any resource stock loaded with cash and pristine balance sheet is a target for the friendly/hostile takeover types. New recovery high commodity prices would trigger all kinds of excitement and hyperventilation. The PDA convention in early March will be swamped with interest and wheeling and dealing. Merger and acquisition lawyers have never been busier. Life is good!
Bottom Line: North American equity markets are only a month shy of their 2 Year sensational 'Recovery Rally Anniversary' from the gloom & doom, death & despair lows of March 2009. Low and muted expectations continue to be the order of the day. Nellies get more nervous as markets ratchet higher. Bears are being converted into Bisons. Autocrats are on the run in the Middle East which is both significant and entertaining.
Irrespective, it sure does 'feel' like the short term destiny for both the DJIA and TSX is new record high territory - and a chapter in the next edition of Ripley's Believe it or Not! Gold has begrudgingly given up a $35 bill (.25%) from it's recent record high level in spite of a very over bot weekly condition. Silver is just as impressive and appears to be the first 'bloom of spring' into $40+ territory before any shorts get squeezed. Agriculture markets are being held to the whims of Mother Nature and the 'next significant' crop report. Mutual Funds have finally benefited from a very positive upbeat RSP season and will be flush with rocket fuel and a new and improved lease on life. American political leadership continues to wrestle with serious fiscal policy issues and containing the omnipotent stimulus genie in a reality show like atmosphere. Ron Paul wins the straw vote!
I normally hate to look further than the next 48 hours of stock market future - but it sure feels like this over bot monster of a bull (headed) market rally wants to accelerate and perhaps even test or gap into new record high territory. I wish I could say, 'I told you so!'
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