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Stocks Love Easy Money. And There Could Be Plenty Of It In The Near Future.
by Dr Joe Duarte
January 17, 2012
Tales From The Road: Grim Determination And Steely Eyes Are Visible In Texas.
U.S. stocks are at an important inflection point and Tuesday's performance may define the rest of the month, and perhaps even the rest of the year.
There are rumblings in the wind that Greece is close to defaulting on its obligations. O.K., no one is surprised. And yes, the whole thing may have been "factored" into the market for some time. But now, the action in the stock markets is one that is factoring in a massive money priting operation in Europe. And free money makes stocks rise, period.
Yes, inflation may eventually consume the markets and global economies. But the money drain caused by the derivative induced nuclear attack on the financial system by the subprime mortgage bubble implosion took trillions out of the global economy. And since we are in a fiat money system, the only way any money is going to replace what disappeared into the pockets of the smart guys who made the right bets, is for governments to print all that money back into circulation.
So now Europe seems to be getting it. Greece will likely default. The Eurozone hopes that they can make it "orderly." And they probably will by printing enough Euros to cover the entire planet a few times. And stocks will likely love it, because stocks love low interest rates and high levels of liquidity.
Does that mean that this will be a good thing? Much of what happens and whether it's good or not will depend on luck and on your time frame. In the short term, it's likely that stocks will climb. The fact that they didn't crash on Friday means that there is money waiting to buy on dips.
Over the longer term, it's harder to predict. But consider this. If Europe becomes less of a problem by taking Greece out of the picture then U.S. stock traders only have to worry about the U.S. ecnomy, which is on the mend to some degree, and on the upcoming election, where Mr. Obama is trying to move to the center, and where Mr. Romney is gaining ground.
Either way, Wall Street wins some ground back. If Obama pulls back and wins, and then keeps his promises, things could stabilize. If Romney wins, things for Wall Street would be friendlier. When you put that together with the rise in money supply that is almost certain to come from the E.U. and perhaps another round of easing for the Fed, stocks could move a lot higher than most expect.
A lot could go wrong with this scenario. But it's fairly clear that it's one that is starting to move into the trading mindset and behavior pattern.
Decision Point®: Market Intelligence Report -- Dr. Joe Duarte