The economy continues to expand, and as winter gives way to spring, it seems that unless there is some shock, employment and growth will continue, albeit at a modest pace and with some headwinds in the form of high prices...
Until there is some confirmation of that the expansion has stalled - or some external shock, it appears that the equities markets seem destined to move higher, although from a valuation perspective they are quite high already and with the run from Q3 2010 would seem to be prime for a correction.
With high food prices, the probabilities for external shocks in the form of unrest in significant exporting countries, appears to be higher than it was in the recent past - indeed Libyan protests, Bahrain, etc. and now even Madison Wisconson!
So, now is the time to be modestly long, with a sharp eye on the door....
At some point the Fed will have to stop the money printing and at some point the general public will realize that purchasing power has declined and that perhaps this modest growth was not enough to offset rising real costs (have to wait for the data to see if this is the case)...
Longs:
Gold
CAD
CHF
SEK
Cheap Tech Stocks
Shorts:
JPY
GBP
AUD
Expensive Tech Stock
Some further comments:
Two points worth mentioning in the AG Capita monthly letter, posted on the Business Insider (you rarely see the effects of inflation being related to taxes):
AG Capita Monthly Letter at the Business Insider
"For politicians, printing money is desirable for two reasons. Firstly, it acts as an unseen tax. One which few voters understand and for which even fewer are likely to blame the political class, at least in the beginning. Secondly, by reducing the value of the currency, the measuring stick I mentioned above, politicians are able to fool many of the voters that their wealth has increased, but of course no such thing has happened."
Funny but true commentary from Caroline Baum:
Referring to the Fed:
"It’s this kind of stuff that makes former first lady Nancy Reagan’s reliance on astrology look sound."
Fat Lady Wanted as Guide to Fed Rate Setters (Caroline Baum - Bloomberg)
