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While the clouds appear to be darkening again over the US economy, the stock market last week didn’t seem to be as concerned about the evidence of slowing as it was in late November. With one news service recently reporting some 250,000 “announced” layoffs in the first month of 2009, US monthly auto sales falling off the map and the initial US stimulus package coming out looking more like a political pork barrel catch-all than a stimulus package, sentiment appears to have held together rather impressively over the last two weeks.

In addition to negative news being discounted recently, it should be noted that the US borrowing rate so far this first quarter is thought to be $125 billion above the same period a year ago. And that amount of borrowing doesn’t even begin to take into consideration the whisper estimates of $4 trillion from a US bad bank plan! Furthermore, one can’t even say that the euphoria was restricted to the US, as the market last week attempted to fan the idea that the initial stimulus efforts from the Chinese was yielding some results. In a really surprising leap of faith, the trade on February 4th even tossed around the idea that the pace of slowing in the Euro zone was leveling off.

March Copper

March Copper

Some skeptics might suggest that the breadth and magnitude of the slowing expectations had exceeded reality, and with the media constantly comparing the current situation to the Great Depression, there was certainly the prospect for excessive pessimism. Even the new President added his two cents in with most of his initial press conferences starting out with statements of how bad the situation would become!

The pessimism was seemingly so entrenched that prior to the critical monthly US Non Farm payroll report on February 6th, many in the trade were wondering if the estimate could be as bad as the expectations. Clearly the global economy has a long way to go in gaining a solid foothold, but despite the disappointment with the initial stimulus offering, the trade saw the effort to improve the stimulus package as a positive.

US Pending Home Sales Index

US Pending Home Sales Index

In addition to the impressive equity market action of late, it should also be noted that strength in gold prices was equally impressive, as that market was able to maintain a somewhat positive price track despite the fact that flight to quality concerns were seemingly tamped down. The fact that crude oil prices also managed to reject repeated attempts to fall below the $40 price level might be another indication of a long term bottoming potential in the global economy later in the year. Even the copper and platinum markets showed impressive action in the face of some of the weakest US monthly auto sales data ever, and that also seems to suggest that certain markets have truly found significant bottoms.

Clearly timing of the recovery has been pushed back from the overly optimistic “just after mid-year” that was bandied about at the beginning of the year, but if the stock market manages to skirt the residual impact of the January payroll report without returning to the vicinity of the November lows, one could suggest that a host of “well positioned” markets have indeed forged key bottoms!

Still, there should continue to be plenty of macroeconomic uncertainty ahead, and those markets that are short term overbought and/or sit significantly above their two-month lows will continue to be vulnerable to sharp setbacks into the middle of March.

This content originated from – The Hightower Report.
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