New Highs Worldwide

By Dr. Duru written for One-Twenty

April 18, 2007

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March 21, 2007: EWU (United Kingdom)
April 2, 2007: EWP (Spain), EWG (Germany)
April 3, 2007: EZA (South Africa), EWZ (Brazil), EWS (Singapore), EWI (Italy), EWY (South Korea)
April 4, 2007: EWA (Australia)
April 11, 2007: EWC (Canada)

The above dates represent rolling days of pain for the angry bears. For three weeks, starting in late March, many (most?) of the world's major stock markets began recording new 52-week highs - marking complete recoveries from the sharp sell-off in late February and early March. Many of these accomplishments also represented new all-time highs. The ETFs above are just a sample of the worldwide offerings. The most amazing recovery comes from the very market that has often been blamed for getting the selling started: the Chinese market, as represented by the Shanghai Composite, not only recovered from February drop of 10%+, but it has actually powered upward almost another 20% from the old high! Talk about the markets having a short memory! Anyone following the global recovery in stock markets would not be surprised that the U.S. market has finally also recovered from the sharp sell-off. But the fact that the U.S. did not recover until a full 4 weeks after the United Kingdom and two weeks after markets like Brazil and South Africa should serve as a reminder that the real action is overseas, not here. The U.S. economy is actually somewhat of a laggard by worldwide standards. And with the British pound now thumping the U.S. dollar 2-to-1, there can be no denying that the U.S. stock market is almost sickly in comparison.

These contrasts between the winded U.S. market and the sprinting global markets sure provide no solace to the angry bears. They still wait for all these markets to face the day of ultimate reckoning for all the cheap money swishing through the global economic machinery. It is this very cash hoarde that kept the private equity folks comfortably buying up companies as if the correction never happened. It is this very cash hoarde that is facillitating the swift bailouts of many sub-prime mortgage companies who have now suffered their own days of reckoning. Companies like Accredited Home Lenders Holding Co. (LEND) and Fremont General Corporation (FMT) have found ready buyers for their collection of distressed loans, even if the going rate has been deeply discounted. These companies have bought time to fight another day.... and further frustrate bears waiting for the housing market to completely collapse and bring the U.S. economy down with it. Heck, now that the federal government is getting involved and suggesting it is willing to spend tax dollars to come to the rescue for the worst parts of the sub-prime market, a true floor may have been placed under the wobbly housing market. Fannie Mae and Freddie Mac are also putting on their respective red capes.

I was ready to call 2007 a bust, but these new highs have ushered in new life to the hopes for another up year. Earnings season has gotten off to a relatively good start. Even Intel was able to report earnings last night that garnered positive market response (I like to track Intel as a "tell" on technology, especially since it is a frequent target of the tech bears). If we make it through this earnings season without any major blow-ups, the next hurdle will be the storied "sell in May" rule. Folks may be so relieved that they made it this far into 2007 relatively unscathed that they may cash in the chips and come back only after a good summer's rest. This is just metaphoric speculation of course. We could just as easily gain more momentum from surprisingly good earnings this month.

I next hope to get caught up on the stock action that I follow most closely, like BBY, VLO, housing stocks, and steel stocks. All of these have had very interesting moves in the past few weeks. And you know my eyes are on GOOG earnings this Thursday! In the meantime, be careful out there!

DR. DURU®, 2007