Satisfaction came in the chain reaction
I couldn't get enough
So I had to self destruct
The heat was on, rising to the top, huh!
Everybody's going strong
And that is when my spark got hot
I heard somebody say

Burn baby burn! - Disco inferno!
Trammps

A clear characteristic has evolved this year, and it's the resolve of the stock market. Time after time, climbing off the canvas, determined to rally higher. Or maybe the stock market is just determined not to close down a lot. Yesterday was more of the same, but instead of Rocky theme music in the background, there was a more festive song dancing in the earlobes of investors. It was party time and disco music permeated the air. It's a perfect match for Federal Reserve action that many think is reckless … but for the moment fun. I've always said the stock market is selfish, it wants to party and dance the night away and rock that punch bowl until it can't take anymore.

Knowing the hangover would happen only seemed to embolden the disco crowd of Studio 54 and other hot spots back in the day, and the same is happening on Wall Street as well. What the street loves is a lot of money sloshing around that makes savings a stupid act. Moreover, I'm told this was the first move to prep investors for serious money printing. The Fed is clearly frustrated that all their clever actions and that magic tool box simply haven't sparked that elusive virtuous cycle. Yesterday's news seems more Hail Mary than sound economic action, but the stock market loves it, precious metals love it, and multinational corporations love it too. At some point, it leads to an avalanche of money in the system that will feel great at first until it drowns us all.

Surely somewhere down the road, it is going to be "burn baby burn."

But the thing is, I'm not sure where that place is, and avoiding the market because the stage is set for more bubble-bursting is premature. This has been my struggle for years with investors and their legitimate fears. Interestingly, the fundamental argument is sounder than it's been in a long time and the case for a higher market based on historic valuations is also valid. But the Fed still thinks there has to be a bigger spark. Of course their action yesterday was another assessment of the state of the union, and they are saying it's hopeless without drastic measures. Even with drastic measures, it's hard to see a scenario where inflation isn't a beast down the road.

Until then, the notion is to party and ignore everything around you. There will be a chain reaction but just how long it takes remains the mystery. Until then, you have to be in the market, sure you can be nimble, but to sit this out is nuts. I'm not saying not to pay attention to the market; I'm saying seek out a portfolio of names and ride the wave. It's not a vote for fiscal or monetary policy. It's not a vote for the integrity of government or the stock market. It's about you taking advantage of the situation. And, yes, it's counterintuitive.

Obviously the recovery is too slow. Obviously businesses are going to retreat further, bracing for the next blitz on their profits and freedoms. Obviously the American public lacks confidence and the kind of leadership that reminds them of greatest of the past and in the future.

Even with those obvious hurdles, we were reminded by Apple this week of how American businesses can make money around the world. Then there is the notion of value, and I think stocks are still undervalued. And then there is the notion of a deliberate attempt to pump up assets on the part of the Fed. There is simply no denying that the printing press could push hard enough for that dam to burst open and money to flood the nation. That's the spark that's going to heat up a lot of things including stocks. That also begins the countdown to the inferno.

I wish the market could chug along on its own merit, but just as the Fed is manipulating stocks, the boycott has also created a different type of manipulation. This whole process is messy. It might be the worst combination of fiscal and monetary policy seen in a long time. On one hand there is a deliberate attempt to destroy businesses through punishment for doing business abroad, and on the other the Fed has become manic about sparking (controlled) inflation.

Today's Session

Earnings since the close of yesterday's session have been overwhelmingly good, including numbers out just now from Caterpillar (CAT). The story of Caterpillar is the story of an American icon that is in the line of site of the administration. The last quarter saw the largest percentage increase in sales and revenue since 1947, and most of that success came from sales outside the United States. President Obama wants to shake down companies like Caterpillar through his in-sourcing initiative. It's backward and much like the action a ruler of a banana republic would take. In its press release, Caterpillar pointed out its global success is creating American jobs. You see, in this brave new world individuals and business must apologize for being successful.

The other narrative is the rest of the world is on fire, and I continue to press this as a key reason to be an investor and to be optimistic. We are positioned to profit as a nation, from the determination of the rest of the planet beyond the west, to have what we have.
If we ruin that it would be a shame, a crime, and economic suicide. I even have to admit these Caterpillar numbers came out stronger than I believed, as construction demand soared.

North America 46%
Latin America 49%
Europe/Africa/Middle East 62% (and you can bet Europe was the weakest link)
Asia 31%

Of all the numbers out there this morning, this report is the most important. The world is on fire and charging ahead like never before in the history of mankind.

American corporations could be knocked out of the loop. Check out the press release from Caterpillar and you can hear a plea from CEO Oberhelman to President Obama and others to let them capitalize without punishment.

"The 2011 increase in sales and revenues was the largest percentage increase in any year since 1947, and much of it was driven by demand for Caterpillar products and services outside of the United States. As a result, 2011 was a record-breaking year for U.S. exports at nearly $20 billion, which supported thousands of jobs in the United States, demonstrating the tangible benefits of free trade. Sales and export growth creates jobs, both in the United States and around the world. Not including acquisitions, our global workforce grew by more than 14,000 in 2011, and since the start of 2010, we have increased our workforce by more than 33,000, with more than 14,000 of those jobs in the United States," Oberhelman

We make money around the world, and we hire Americans. Just as the people that pay the least to no taxes seem the most upset that Mitt Romney only paid $6.2 million in two years, it's those that have never created a single job ever that want to destroy the true job creators.

Comments

You are spot on, the world wants what we have. If the Administration would only take up the mission to help US businesses grow their exports, we'd all be set for life. Brad Lunde on 1/26/2012 9:58:56 AM

I do not believe we can analyze the market's future movement now any better than any other time in history. In fact, I think that volatility is just slightly lower than this time last year. The public's uncertainty, which spreads to the traders themselves, is fed by media reports which, as we all know, are framed by sensationalism. Instant communication puts us all on constant alert. This will be the norm for the near future, I am thinking. Les Holland on 1/26/2012 10:03:56 AM

Quite Simply - - -NO I wish I could be brave and invest more but when the rally is based on a "drunken party" of too much cash because saving money is ridiculus right now then I know the "hang-over" is going to be long and painful. Like the hang over, which robs you fo at least a good part of the next day the final explosion or implosion of bubble time investment will be huge and the losses will take a long time to recover but recovery will only happen IF we somehow get back to smaller government, less regulations and an implementation of the free market capitalistic economy that made us great in the first place. Otherwise, I fear a place I don't want to be. But back to point, do I believe in the Stock Market today? A simple loud NO will suffuce. cathy forrest on 1/26/2012 10:29:50 AM

I don't trust this market at all. I am glad to collect dividends and bond interest but am keeping lots of cash (like corporations) on the sideline waiting for the right opportunity. Hilda Greenbaum on 1/26/2012 10:43:24 AM

Hey Charles...Yes, for the short-term. As soon as our 'dear leader' is re-elected and really begins dismantling our free market system, we'll be back in the tank. Robert Kozel on 1/26/2012 11:00:28 AM

no Jason on 1/26/2012 11:18:26 AM

Yes thomas j zaleski on 1/26/2012 11:46:01 AM

Charles, I am a FA for NML. I think the market will be slow to climb. I think that there are going to be some soft spots along the way (this summer, when everybody go out of town). The killer will be if Washington grid-locks. Gus Hampson on 1/26/2012 12:51:06 PM

Charles: This is one of the best articles you have written Spot on! wc fowler on 1/26/2012 3:22:17 PM

The market IS rallying. What's not to believe? Jon Guilaroff on 1/26/2012 4:17:45 PM

The market is over bought and being artificially stimulated and manipulated by the Fed who is further easing because inflation is at 2%. I believe the Fed will over-shoot a 3% inflation target all in the effort to avoid deflation. David Daniels on 1/26/2012 4:24:09 PM

I believe it goes up and down. Some days I can't figure it out why this happens. Case in point EU goes up or down and it affects our markets but sometimes it doesn't. It is the individual investor. Bob Medkeff on 1/26/2012 4:48:03 PM

Yes Charles I believe in market rally. The only bad thing is that I am not investing due to fear. How do I open an account to start investing. Please tell how can I get started! Victor Tamez on 1/29/2012 3:08:26 PM

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