Tuesday, February 13, 2007

Big Day

Stocks are having a big day, with the Dow up nearly 100. Investors are building in a market-friendly testimony from Ben Bernanke, who will appear in front of Congress tomorrow and Thursday.

I think folks are expecting Goldilocks -- not too hot, not too cold. St. Louis Fed president Bill Poole probably set this up last week when he said economic growth is moderate and inflation is falling.

Poole also said if inflation were to increase, then the Fed would restrain it through tighter money. Many in the markets interpreted this negatively, but central bankers always say that if inflation rises they will offset it. But the meat and potatoes from Poole's speech is Goldilocks.

Also helping stocks is Saudi chatter that OPEC will not cut production further. Add to this a tentative North Korean deal that trades disarmament in exchange for energy assistance and security guarantees. However, as Ronald Reagan used to say "trust, but verify." It's that verify part that needs to be verified.

President Bush dampened speculation of a military strike on Iran in a C-Span interview, but the "kill or capture" policy for Iranians in Iraq is still in place. On top of this, the Iraqi government says that it is closing the border with Iran and Syria for 72 hours.

The U.S. troop surge has probably already begun, as General Petraeus takes over the reins in Baghdad.

But the basic reasons for the U.S. stock surge include solid growth, low inflation, strong earnings, high productivity, and lower tax-rates on capital.

In other words, the Bush boom. It's still the greatest story never told.