Monday, October 09, 2006

Time to get (ever more) Bullish

My headline should be a warning signal to seasoned traders, but I believe that the Dow setting a new ATH and the sentiment still being somewhat bearish should push stocks still higher. Yes, we have had a few good years now; yes, there are serious threats to the economy (housing bubble, geopolitical concerns, commodities inflation etc). But this will not be the end to the bull period. A weakening dollar will make US goods more competitive abroad and moneatary policy is still accomodating. Even if a potential housing bubble will burst, companies CAPEX spending will hinder the economy from going into a recession. The Asian consumers are also taking a much more important role in the economic growth engine now than for a decade ago, which will be good when the americans start saving. And the most clearly signal for a bright future scenario is the Dow itself setting a new high. This is for me a strong buy signal and the end of the low volatility period. Stocks will go up and don't forget that the markets has fat tails.

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