HAUKE: Storybook market may last a bit longer

Fables and children’s stories contain wisdom and lessons in formats that are easily understood.

A few
weeks ago, some inspiration from the tortoise and the hare showed up in this column. This week, another story from our younger
years pops up as an answer to the most commonly asked question I have received recently.

People keep asking me
to explain the stock market advance over the past five months. There are usually comments at the end of the question, like,
“The economy sucks. How can the market go up when there is nothing going on out there?”

To be fair,
I am not the best person to ask “why” related questions. I spend most of my time on the “what” and
“what could be” rather than the “why.” Another aspect that I have brought up several times in the
last eight years of this column is that the stock market is the best leading indicator known to man, and the reasons it moves
are usually felt and seen after the move is well on its way.

But, I love a good story as much as the next person,
so I did some thinking about this particular tale. As 2008 pulled investors deeper into the red, governments all over the
world printed and borrowed more and more money to throw at the financial sector and consumers. A logical result of this unprecedented
printing and borrowing is an eventual tidal wave of inflation.

Over the last few months, with the market staying
up and consumer prices falling, investors are forgetting about their worries and putting their cash into stocks. There is
a general sense of everything being just right. They figure slower global growth can support higher asset prices as long as
inflation isn’t running amok.

We all know that sometimes investors get it wrong, and once in a while they
get it radically wrong. A case like 2008 does not happen unless most people are really wrong. But sometimes investors get
it right. The current environment may be a case of both.

Today, the world is not falling apart and consumers are
more apt to deal with mild cases of deflation rather than the opposite. And, a case can be made that we will stay in this
Goldilocks world a bit longer.

I mentioned a few weeks ago that I thought this rally could take the market up
another 10 percent to 20 percent before heavy selling returns. I still believe that, and that could mean the Dow moves up
to near 11,000 over the coming months. But, if the inflation that was strongly talked about earlier this year begins to find
its way into the stuff we need to get through our day, we could see 7,000 again before the end of 2010.

Over the
intermediate term, it looks like the environment could be healthy for the stock market. Corrections are ever-present and I
would not be surprised if a pullback occurred soon, but I don’t expect one, if it occurs, to get out of hand. I would
use any correction over the next few weeks to add to equity positions.

As you are buying and holding stocks, though,
don’t forget how the Goldilocks story ends. She is sent running out of the house by not just one, but three, angry bears.•
Hauke is the CEO of Samex Capital Advisors, a locally based money manager. His column appears every
other week. Views expressed here are the writer¹s. Hauke can be reached at 203-3365 or at keenan@samexcapital.com.

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