Stocks reversed their early decline yesterday to close on a positive note, on…. The promise of a Greek debt deal, again. It is becoming more and more evident that the markets unspoken feeling is “who cares” or “get it over with already”. In other words, this saga has been repeated nearly weekly for the past 2 ½ years and the markets are beginning to resign themselves that default and an orderly exit from the Euro is becoming an unavoidable truth. Additionally, we are hearing more and more undertones from strategists and analysts who are pointing to the fact that when Greece defaults and exits the Euro, assuming it is done in an orderly fashion, the economic damage to the rest of the world is likely to be minute.

In his testimony before the Senate Banking Committee, Mr. Bernanke echoed his cautious statements and tone from a week ago. In spite of the Chairman’s muted outlook, economic data continues to show a strengthening economy. Yesterday, two key reports were released. First, the December Job Openings and Labor Turnover (JOLT) report showed that there are over 3.4 million job openings in America, which means that there are 3.9 unemployed Americans for every job opening, which is the lowest level since December 2008.

Separately, we learned yesterday that US consumer credit expanded to $19.3 billion, showing further strength in the economy and consumers ability to borrow.

As we discussed in our December newsletter, as well as several postings since, we continue to be bullish on equities. One of the key drivers behind our view and the markets recent strength is that the global economy continues to improve, and that the actions by the ECB are having a significant impact in reducing contagion risk as well as risk to bank balance sheets.

Chart provided by Barclays Capital - part of a more comprehensive report, for illustration purposes only!

Figure 1: Equity returns year-to-date reflect the mitigation of disorderly European bank deleveraging, particularly when viewed across sectors
Note: Based on equally weighted indexes using total returns; Cyclicals = DIS, FIN, ENR, IND, MAT, TEC; Defensives = UTL, STA, HLC, TEL. Source: FactSet, Barclays Capital

by thebetafund.com