What We Know, and What We Suspect

As we discussed yesterday, recent weakness was a
dip to be bought. But we should also understand that anticipating more
upside is really about anticipating the news flow, and investor reaction
to that news.

Of course, I didn’t know that
Portugal would get a
great response to a bond auction, thereby lessening worries that debt
problems were spreading. I also didn’t know that Wells Fargo would
upgrade the financial sector on renewed dividends and “superior” earnings

But at the same time, the conditions are in place
for a constructive resolution to most of the problems facing the stocks
market. We knew banks were getting close to dividend payments. And one
look at the yield curve shows you that banks could/should be making

*****In terms of European debt, we’ve seen
Ireland, now
Portugal and
Spain come into focus. The reaction to Greece was the worst, for sure.
But that’s because it was first.

The reaction to Ireland‘s banks wasn’t nearly as
severe. It also wasn’t a surprise.
Portugal and Spain are even less of a
surprise. They’ve been mentioned as potential problems since

Greece nearly
collapsed a year ago.

Ultimately, the willingness of Germany to lend, and other
nations like
Japan and China to buy indebted nation bonds has trounced the bears, eased the
worries and left stocks in position for a relief rally.

*****Now, I don’t want to sweep these debt
concerns under the rug. Debt problems will hamper growth for years to
come and that bailout money has to be repaid. And when you’re talking
about a country with very little growth, the funds to repay loans come at
the expense of what little growth there is.

The Bank of Ireland
alone needed a $114 billion bailout.

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