Closing the Week Strongly

Barring a dramatic collapse, equities will close the week strongly. And why not? The weekly data out of US and Asia has been relatively benign.

In US, the Treasury funding program went smoothly, particularly the 7yr Treasury auction. It was a vote of confidence for the US. Meanwhile, the Fed Chairman, Ben Bernanke's positive assessment of the economy (that it was recovering) was also well received by the market. Merger and acquisition talks in the US added the icing to the bullish cake.

In Asia, the PBOC said monetary policies would remain accommodative as the Authorities were still concerned over the sustainability of the recovery. In Korea, BOK made similar comments, when they said the expansionary policies would be kept in place until clear signs of the recovery emerged. In a nutshell, Government around the world seemed less optimistic than the stock markets, and have vowed to keep interest rates low. That's great news for the stock market that has chosen to focus on the low interest rate bit, and ignored the growth concerns of the Authorities. This is a complete 180-degrees turn in sentiments... just 3 months ago, the market would have focused on the growth concerns and ignored completely the low interest rates and fiscal stimulus that were put in place.

This make a mockery out of financial theories that advocate perfect markets; that prices are "perfect" and always reflect all available information. In the latest survey of its members by Britain's Chartered Financial Analyst Institute, over two-third of the members rejected this proposition. More than 77% now believed investors behave rationally. Sounds like an urgent rewriting of textbooks is needed quickly.

So, will it be plain sailing for the rest of the year? Not according to Warren Buffet. In fact, Mr Buffet reckoned the recovery willl be so tepid, that a second round of stimulus may be necessary. Does the stock market think so? No. And right now, the Bulls are charging...