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Market on the Ledge of Outer Space
I was lucky enough to turn on the TV yesterday during Felix Baumgartner's historic jump from outer space. What an amazing feat of courage. For me the most striking part was watching Baumgartner, alone in his tiny space capsule, going over the pre-jump checklist with mission control over the radio. Talk about suspense. And then there's that moment when the guy back on Earth says, okay Felix, step out onto the ledge. For investors today that's how it must feel.
We've been weightless up here for a month now; no gravity, no air resistance, no traction for stocks to latch onto. You almost feel we've been lifted up here by an air balloon filled with hope and central bank money printing. There are so many risks in the global economy now that you can't help but to look down, 24 miles to the ground:
• Felix Baumgartner: 128,100 feet (record high skydive)
The thing is, among other factors, the fate of the European Union hangs in the balance, which if dismantled would surely lead to a global calamity. Already we've been experiencing a slowdown here in the US as a result, heck look at the 3-month slide in the Empire State manufacturing index this morning. And while the economy at large is still growing you feel we're hitting peak altitude.
Make no mistake, this is not a predetermined space jump for the market. Unlike Felix we can stay in our balloon but any missteps and you feel we could start an uncontrollable tailspin at the speed of sound. Our balloon has not deflated; given all that's happening the resolve of American consumer confidence is staggering and encouraging:
• Baumgartner's capsule: 55-story tall helium balloon (record high manned balloon flight)
We don't have to jump. I look at our national fiscal cliff debate and think that if congress can't agree on anything we're essentially jumping on purpose. But if we can agree and make a plan like rational people (which I think we will) that sky-high confidence can stay inflated. You would think that an across-the-board tax cut and reducing the corporate tax rate from being the highest in the free world would be like adding another balloon. But maintaining a course of profit restriction and income redistribution only limits how high we can go.
Of course, Ben Bernanke's current "fix" is to strap a turbo-charged helium pump onto the market and inject it with cheap cash. Maybe that lifts us for a while but when you literally inflate assets you risk over-doing it and popping. Let's hope Ben has an eye on the pressure gauge.
Some would say we've already jumped:
• Felix Baumgartner: 834 mph (first skydive past the speed of sound)
I say no, we're still floating higher:
• S&P 500 4Q12 projected operating earnings per share for all companies: $26.94 (record high)
We're still just barely on track. And for those doomsayers who have lost any faith, at least Mr. Baumgartner has taught us one thing: no matter how improbable the circumstances might seem, with the right preparation you can always land safely on your feet.
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