As Good as It Gets? - 04/13/10

The optimism in outlook we're seeing from the talking heads on CNBC is not surprising.
As the persistent rally dominates, a continuation of good stock market news has become more expected
Will this situation continue unabated? I can't say with certainty, but I'll lay out my position over the coming days.

 

Too much of a good thing can be wonderful.
-- Mae West

On CNBC this morning, several strategists are speaking with certainty and clarity, forecasting not only a self-sustaining economic recovery, but in a recovery that will substantially surprise (on a consistent basis) over the course of the next few years, and one that will translate into substantial market gains from here.

These are some of the same talking heads who entirely missed the credit/economic crisis of 2007-'09.

The optimism in outlook is not surprising, and bulls have been emboldened during the strong 60-week uptrend in stock prices that has been achieved despite a U.S. discount rate increase, tightening measures in China, a debt crisis in Greece (and downgrades in Portugal and others), the financial disarray at many domestic local and state levels, the passage of expensive and unpopular health care legislation, continued weakness in housing and rising (and the specter of still higher) interest rates.

To be sure, as the persistent rally dominates, a continuation of good stock market news has become less of a surprise and more expected.

More important, we should probably ask ourselves several questions:

  • Are the rosy economic and stock market forecasts likely to be accurate?

     

  • How much of the good news has already been discounted in current share prices?

     

  • Since nearly every period in the last 13 months has been a "buy on dip" opportunity, could this change?

     

  • Will a market that has ignored bad news suddenly turn in to a market that starts to ignore good news?

     

  • In other words, is this as good as it gets?

I, for one, don't have the answers -- and I certainly don't think the aforementioned CNBC guests do -- but I will try to chronicle my opinion in logic of argument and complete analysis over the next several days.