Christmas or Coal?

Posted: Oct 27, 2011 12:01 AM

The financial markets are presenting a very interesting quandary for investors. 

At quick glance, it appears that we have been given a Christmas present.  

The quandary is that in opening the present, will it have been an opportunity to jump on board or get out with our lives?  

Those who believe the recent surge in the market is just the beginning of a new bull market extravaganza cite the traditional “climbing the wall of worry” as a catalyst.   They’ll point to the “accommodations being made” in Europe and a crisis they believe will be averted as it always has been.  

Lower earnings expectations that have been exceeded by many companies will give credence to the fading of recession fears.  

The BRIC countries are singled out as leaders in the growth engine for the next decade.  Of course, the strength of the stock market itself will be fuel enough for the continuation of a melt-up. 

To those who look at this Christmas present as an opportunity to get on board, you will be very satisfied by the hopium which is being extolled. 

Others that think differently, and I’m one, consider this a present for those who haven’t yet exited the market. 

For two weeks this past August, we saw the powerful downside of fear, as a year-and-a-half of gains were completely wiped out.  Now, after the recovery, the markets are waffling between nearly positive and negative returns. 

One day they’re down 200, the next day up 200, it all depends upon the last thirty minutes of the trading day. 

The reality of Europe, the BRICs, and even the U.S. itself is they’re all running out of time. Contraction, recession, and outright collapse is on the horizon.  

The proverbial “kicking the can down the road” has unfortunately run out of pavement.  As decisions are made and actions are implemented, someone has to lose.  

For years, it was the depositor and the taxpayer who lost, now however, given the politics and economic realities it would appear the tide has changed.  

As markets realize the inevitable losses that will be taken, they too will reflect this changing tide.  

Before that happens, however, we will all be given that opportunity, that gift to sell your positions and stand aside.  So, a present is given and an opportunity presented.  Here’s the big question: What exactly is wrapped in that shiny gift?  

Only time will tell if it's a big lump of coal.