Optimism is Back, But it May Be Fleeting

By on July 5, 2011

The stock market staged an impressive comeback last week after spending nearly two months on the defensive. Some decisiveness on the Greek problem and a couple of positive economic reports were enough to send the bears sprinting for the hills. It was the best weekly percentage gain in nearly two years. The S&P 500 was up 5.6%. The big question is whether this a move to the top of the trading range we’ve been in for months, or a meaningful advance signaling higher prices ahead.

From this vantage point, it looks like a move that will end in failure; probably within a couple of weeks.

Jon Markman has written an article in which he comments on a conversation he had with Lakshman Achuthan, head of the Economic Cycle Research Institute. Achuthan told Markman that employment growth had peaked for this cycle. If true, this is a very grim development for the U. S. economy.  Achuthan also believes the global economy is in a cyclical downturn. He says it won’t matter if the Fed continues to buy bonds after the conclusion of QE2, which he characterizes as pouring water in the desert at this point.

Beyond Greece, there are also challenges ahead for the massively indebted Spaniards and Italians; no small fry in the European Union.

It doesn’t appear investors are factoring in the dangers that are prevalent today. Lulled by low interest rates they are forging ahead into Riskland.

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