The Range-Bound Thesis

I continue to believe that stocks may be stuck in a 1020-1100 range bound area through the near term. My view is based on the below assumptions:

(1) Housing will continue to disappoint or provide only stabilized results (partially due to weather at the beginning of 2010 and due to the tax credit's effects now being minimized and then disappearing after May 2010).

(2) Foreclosures and credit card delinquincies will keep consumer buying in check.

(3) The very resilient consumer will continue to spend somewhat though and thus fuel positive earnings reports. However, outside of tech and/or internationally exposed companies, these earnings will have trouble showing reliably strong revenue growth and 2nd half of 2010 outlooks.

(4) Greece and other Euro sovereign debt problems, Dubai World debt problems, US treasury auctions receiving less foreign investment, China raising bank reserve requirements and interest rates --- will all continue to underscore the healing process that the global economy and its financial foundations are working through - and, thus, growth is taken with some perspective and somewhat muted.

(5) The decline in inventory of businesses appears to have bottomed, finally. This provides only upside for new orders and growth (albeit, this will be slower than normal recession recoveries).

(6) Unemployment numbers will continue to hover between 9.5% and 10.3% and job creation will only start modestly in the next few months, if then. Basically though, unemployment will not improve dramatically in 2010.

(7) A weak dollar (via lack of US treasury sales or the Chinese allowing currency appreciation or increase value in the Euro) will help US exports and support international company growth and earnings. This is a strong positive that has helped sustain the US economy over the past 9 months.

(8) 2009 stimulus actions and their effects will begin to wane after March. New stimulitive measures (such as jobs bills) will help marginally and not have an immediate impace.

(9) Uncertainty of the tax climate as Congress appears unable to resolve any legislation and provide any direction for businesses who are fearful to expand, hire or apply for credit.

(10) Pure wild card that is for much longer down the road --- but Chinese bubble in real estate has received alot of rumor attention/discussion. Current real estate loans/plans in China provide for enough activity to build a 5.5 ft office for every person in China. Call me crazy but something tells me not every Chinese person (and there are tons) is demanding this space. This helps explain recent Chinese efforts to slow the growth of their economy and the lending by their banks as well. Whether they can thwart the lending activity they initiated in 2009 will remain to be seen. The US certainly couldn't.