Ever since strong Black Friday sales were reported at the end of November, combined with the news of the ECB’s (European Central Bank) move to flood more dollars into Europe, the market has been on a forward march. True, holiday shopping did look solid, but the problem is personal incomes are not growing as fast as spending – an unsustainable course. We will not delve into our thoughts on Europe, except to say the closing act looks bleak.
At the end of Q1 2011, we wrote in our quarterly letter to clients: “whatever the events are that threaten to topple over this drunkenly bullish market, they only seem to cause a slight, momentarily stumble backwards and then it resumes sauntering forward again. The real question that remains is what will finally cause the market to come thundering back down to reality.” I must admit, recent market action has us feeling eerily similar to that time period. We’re not trying to call a top here, in fact, last time we wrote that, the market sauntered forward for months to come. But we have to wonder if reality will be setting in sooner this time.
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