The market has turned into a giant game of chicken. I sit and watch the stream of news and ticker prices, wondering who will buck first, the bulls or the bears. On the bull side, I see a group that has the support of the recovering economy of the United States. On the bear side, they sit hoping that Greece falls apart bringing the European Union down with it. Let us take a deeper look into both sides of the argument to see who will prevail in the heated game of chicken.
Looking at the bull side of the argument, we see a lot that was not here a year ago. Economic news has gotten substantially better. One still sits and questions the employment data, knowing that the numbers are not as good as the 8.1% suggests, at the same time, the number is far from the teens. Whichever barometer one looks at the y/y numbers, the data has improved substantially, enough to look past a double dip. The good data has slightly fallen off in the last few months, don’t get me wrong, but that is par for the course. One can look at the U.S. economic picture, the company earnings, and look towards the end of the year and see that a double dip is nowhere near part of the game plan. The bull case, or the case in which the world does not end, seems to hold some merit into the last half of the year.
Taking a long hard look at the bear side, a group that I have been part of for a majority of the rally into the first half of 2012, one can be left wondering. Wondering what exactly the consequences are of the Euro mess, what exactly can go wrong in China, and how low the market can go? The Europe mess has legs, no question. If things fall apart across the pond, it will likely not be a good year for anyone. Though, what are the real chances of things falling apart? If the European Union wanted Greece out, wouldn’t they have pulled the plug some time ago? The truth seems apparent, the European Union will attempt to stick together, whatever it takes. They may end up kicking Greece out at some point, whatever the E.U. chooses, it will be to preserve a strong European Union. China and the BRIC countries have seen slowing growth as of late, but the hard landing suggested some time ago, has recently lost merit. The bear has had some good support as of late, but U.S. growth, earnings, and balance sheets suggest a healthy business environment for U.S. equity markets.
Obviously there are many more facts that I failed to cover in the short post. One thing remains true no matter what facts are presented, the bull side looks strong. It may take some magic to make new highs, but the end of the world is far from here. The markets have been fooled before, and they may not be the sharpest around, but they won’t get fooled this time. I sat hoping and praying for the European mess to fall apart at the beginning of the year, it didn’t happen. It didn’t happen this year, last year, and the times before that. I suggest one quits hoping and praying for the end and looks at the facts. With or without Greece the E.U. will come back stronger, the recession in Europe will linger, but the recovery will not double dip here in the states.