Gentlemen, start your engines

(6 Feb) The markets ended the week putting together a couple of up days such as we haven't seen for a while. Friday was the prime example of the markets being forward-focused and not using the rearview as the reason for investing.

"The highest levels since..."

This is the current phrase the media uses to set you up for not such good economic news - and today was no different. The US Department of Labor reported that unemployment was now at, guess where, the highest levels since 1974. For most current investors and their advisors, the date may have well as been 1874. There is little understanding of those kinds of market environments in the collective consciousness of the investing public.

As luck would have it though, I was there. That's shortly after I started in this business and self-congratulations were not part of my self-talk at the time, I assure you. My point is that, contrary to popular belief, we have been in such tough times before. So, while it's near-term painful, it's also typical of how our economy functions.

The ever expanding stimulus "package"

I have little positive to say about this thing other than the collective national mentality is now such that something has to be done to help instill the perception that somebody is actually in charge. Perceptions become reality and the perception now is that this pork fest will provide what's needed to "get us going again." Without it, we'll have the stock market equivalent of Punxatawney Phil and have who knows how much more bad market conditions.

It's axiomatic that a successful investor is one with a strong faith in the future. So, if this great huge band-aid, filled with all kinds of checks in the mail type benefits is what's needed to get things started and rekindle the faith of many, then bring it on. Unfortunately, the politicians who are all over themselves saying how much they need this "right now" will, likely, be gone when the inflation piper comes back to town...

The net result

The markets are overlooking the old news of the unemployment and focusing on how these bank and economic bailout bills will improve things. I'm thrilled that the markets are starting to get some positive traction inhere. They should - just based on valuation.

Stocks are the cheapest they have been on that basis in 20 years. Even the guy everyone seems to love to quote, Warren Buffett, has said that when the total stock market value is at 70% to 80% of the national GDP, it's time to back up the truck and load up. I editorialized just a bit on the last part but he did quote those numbers. For reference, in late 2001, the markets were still at 133% of GDP.

I'd say that we're seeing the first real stirrings of a move back to positive market land. This is the time to be stepping back into the high quality companies and funds.

Summary

We'll hear Monday what kind of jury-rigged deal they've put together for the banks and learn how the stimulus bill - now projected at $937 billion, up from the $700 billion it was when it got to the Senate - got through the Senate.

While the news may be perceived as positive initially, two things to keep in mind. One, whatever the Senate gives birth to will still have to go back to a joint House-Senate committee for the polishing. Who knows how long that will take? The other is that there is a very longstanding bit of advice regarding market trading that says to sell on the news. In other words, speaking as if it's Monday, now that we know the details, we'll start analyzing it and the thrill of anticipation is gone.

Don't be surprised if, due to that and the recent run-up in share prices across the board, we get some selling on Monday.

This show is a long way from being over...