Stall Speed

Yesterday, we stopped by Bond Park. There’s a big grassy field there where people bring their pets for a run, have a picnic on the lawn, or just enjoy the open space. Previously, we watched a German Shepherd fetch Frisbees—showing boundless energy and amazing skill. Yesterday, we watched a battery-operated toy airplane taken through its paces. The owner showed great ability in diving, looping, and rolling that little flying machine. But alas, after about ten minutes of fun, the battery was exhausted, and the little bird began to sputter and glide down to earth. There was nothing left to drive it forward. What goes up, must come down.

For the week, U.S. stocks rose another 1% for no particular reason. This hope-driven rally lacks both conviction and basis. Fear all but dried up, but U.S. Treasury Bond rates did move up more sharply than expected. The week started with stocks in Asia up nearly 2%, joining the “risk-on” frenzy from the previous Friday in the West. Stocks in Europe pressed strongly higher on hope. but U.S. stocks moved up just marginally on low volume.

Tuesday, the buying spree continued lifting stocks in Asia about 0.5%, in Europe another 1%, and in the U.S. about 0.7% on light volume. The S&P 500 Index closed above 1400 and the NASDAQ above 3000. The 10-Year U.S. Treasury Bond rate rose nearly 5% more to close at 1.63%. Our central bank friends will not tolerate this rate of rise very long before taking things back down as rising rates have a big effect on their bogus balance sheets. Even bloated IBM soared above $200 before sliding just below it at the close as a sure indication that things are getting very over-bought again. To top things off, the VXO fear index slipped below 15 to close at 14.90, indicating a very low fear level.

By Wednesday, buyers began running out of steam. While stocks in Asia continued a bit higher, in the West they went nowhere on low volume as the hope-fest transitioned again to at least consider reality. SLW, which priced near 25 a just few weeks ago, powered higher over 5% Wednesday before dropping back to close just shy of 30 on news of a major silver contract with a mining company..

Thursday, Asian stocks continued climbing upward after China reported a drop in inflation. This time, the gain was nearly 1%, raising the hope for Chinese easing in addition to the ongoing hope for further EU and U.S. easing. Stocks in the West again marked time on low volume. The 10-Year U.S. Treasury Bond rate rose another 3% to 1.69% despite Operation Twist. SLW tacked on another 2%. The VXO descended to a very complacent 14 and even the AAII Sentiment moved to a bullish stance. A contrarian would have to say there’s very little fire-power left to drive things higher. Friday, China reported more evidence of economic slowdown related to trade. Stocks in Asia finally succumbed a bit, rolling over about 0.5%. Stocks in Europe shed a bit less and U.S. managed a small gain on low volume.

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