Goldilocks coming? Suddenly, the third leg of the bulls' stool may materialize.
There are three legs to the bulls' stool. For the last couple weeks, bulls have been arguing — successfully — that two legs of the stool were firming up:
1) an improving U.S. economy, and
2) a two to three year extension of the Bush tax cuts for everyone.
What they have been missing is the third leg: some kind of resolution to the Eurozone crisis. But suddenly, Trichet has given body language that a very broad — NOT country-specific — response may be coming, perhaps as early as tomorrow.
Cynics are quick to pounce on this. They point out:
1) buying interest is not strong; volume is about average at the NYSE,
2) housing remains weak, and
3) unemployment is likely to remain well above 9 percent.
But there's something else missing for the bulls to get Goldilocks back. There is actually a fourth leg to the stool: equities need to return to respectability as an asset class with the broad public.
What would do that? More than just a rally to a new high is needed. The easy answer — THE BOND MARKET NEEDS TO DROP BIG TIME to scare everyone out — would be a catalyst, but may not be sufficient by itself.
The problem is the baby boomers are old, and they can't afford to lose any more money. They got killed in the dot-com collapse in 2000, but they were 10 years younger then.
They got killed in 2008, and this time they got really scared. They can't handle another slaughter.
Getting over that hurdle will be the major obstacle for the bulls in 2011.
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