Boring is Lucrative

Gone (for the time being) are the dramatic days of banks failing, 700,000 people losing their jobs EACH MONTH, foreclosures being a rare situation, and dooms day scenarios abounding around every news corner.

What has returned are steady and predictable times and that is what markets thrive on. Uncertainty and fear create selling and losses. When the government starts to tinker with revamping a part of the economy or getting involved in certain industries, the market is forced to readjust and the uncertainty over who is in control and how it will affect companies creates selling and fear.

But right now we have a clear blueprint for the near term. Sure unemployment is high and slightly climbing. Sure the economy has stabilized but is barely showing actual growth. Sure there are more bank concerns such as commercial real estate and the lack of lending. However, those are small potatoes compared to where we were. Look at the Dubai financial "crisis" of this past week. The US was very narrowly exposed to the crisis (at least so we think as of now) -- however, the real "crisis" here was whether or not the fear would return, whether the market group think and mentality of certainty and movign higher would be derailed -- and it wasn't. This was a signifanct test, even moreso than an economic report like today's that showed improving manufacturing activity but at a slower rate than economists expected. This was a big test and the market remained up and recovered its temporary losses.

The reason for the stability is that the Fed's blueprint is obvious for the near and medium term. At least until March 2010, the Fed Rates will remain near 0%, the Treasury will continue to buy mortgage-backed securities and keep housing rates low, and banks are likely to continue to preserve capital without much lending and keep inflation in check. Moreover, we've come to understand and accept the "U" shaped recovery we're in. We expect economic growth but understand that minimal growth combined with a 10% unemployment rate is a reality.

I believe that there are some undercurrent that are laying the groundwork for large problems (inflation being an obvious and likely one) in the future, but not until late 2010 or more likely 2011. I believe that the stability that has been created is likely to create a choppy 2010 environment that will see minimal growth, a properly valued S&P by years end, and a trading ranage of 1050-1200 throughout 2010. There are uncertainties as federal programs end and if hiring doesn't begin in 2Q 2010. But these are the issues to keep an eye -- meanwhile, the market and herd mentality continues in a comfy, confident manner -- that being that the blueprint is established and we can all trade without fear accordingly.