Lifting the Camouflage

The stock market has been growing more dysfunctional since September 2010, but so has the world—for the short-term.  However, we expect the market to start showing an improving trend as 2011 continues to evolve, and we believe that an amazing turning point of dynamic and sustainable economic growth will come out from under the camouflage as this year progresses.  We expect the last victim—the housing industry—to do the same, which will allow the Federal Reserve to finally start normalizing monetary liquidity and the yield curve (chart shown below).  And history shows that this is VERY BULLISH!
Click to view larger image.

Of course, the housing market is a huge negative, but I believe that in today's news we are seeing the last stand by the banks as they scramble to get rid of the overhang of under-performing loans regardless of the temporary pain, because the Fed has promised them "free money" until they get totally back on their feet.  And so, the financial markets are "starting" to offer hope for the future of the housing market, as we see that today's housing news is more of a result of that final "dumping" of houses as banks clear the decks.  So, it's important to look at the signs pointing to the lifting of the camouflage.  But overall, the housing industry's lack of participation at this point is still a very big negative.

But today, in the current dysfunctional stock market, we say that you have to look under the camouflage to see the future that lies ahead. 

To view today's complete Market Comment, click here.

Don Hays

Please see important disclosures at the bottom of this page.