No Sign of the Christmas Scrooge

In the last week before Christmas Scrooge is no where to be seen. The skeptics are being driven from the markets. It is nigh on impossible to find a strategist at the moment prepared to come on TV and tell you not to own lots of stocks going into 2007. Giles Keating, Head of Research at Credit Suisse is a case in point, it doesn't get much more Goldilocks than this: U.S. soft landing then reacceleration of growth in the second half of the year, Europe outperforms the U.S., and Japan (A STINKER THIS YEAR) recovers further. Safe in emerging markets, but hard to find value in bond markets. Inflation doesn’t threaten the party and corporate profits continue to roll along nicely, with partial confirmation from another guest –- Ed Thompson, Gartner (the tech research people) –- that corporate spending on software and IT is, if anything, picking up.

In this benign world the gremlins are out there... if you look very, very hard. Mostly they would come from mistakes... politicians not managing the geopolitical balancing acts in the mid-east and N. Korea. Central bankers in G10 economies getting trigger happy and pushing up interest rates beyond 'neutral' or the current accommodative levels. Then of course there is always the much discussed 'carry,' where cash is borrowed from low interest rate economies (Japan and Switzerland) and parked in better yielding currencies or trades. Hard to put a number on it, but this mechanism has contributed to asset price inflation over the last few years. But who is worried? These are surely low odds outcomes if the strategists have got it right.

But lets not spend too much time on the future here... goodness knows there is plenty of time for that as we dissect the analysts reports. It's time to party, and enjoy the rewards if you did well in 2006. Some China funds have done 80-90% this year. Emerging market equities as a class, excepting Turkey and a few other laggards, have delivered a good solid double-digit return. Even the main G7 bourses have turned in low double-digit numbers. For another year you didn’t have too try to be too cute in equity markets to make money. It won't always be this way.

Best of the Season.