Financial Watch

To the growing number of bears calling for a pullback the saying sell in May and go away has been taken to heart. Today we learned short interest hit a level not seen in more than 70 years. In examining the fundamentals of the market it is clear barring some unseen event we are moving much higher. To many out there the greatest risks are that either inflation will elevate beyond comfortable levels or the Chinese stock market bubble will melt down. Financial Watch discounts these risks as being greatly overblown. First of all the bull market we’re having in commodities will level out to more sustainable gains in the second half of the year. Most of these gains seen so far this year are in the volatile food and energy groups. The second major risk out there is a severe correction in Chinese stocks. In taking a cue from Alan Greenspan’s famous 1996 irrational exuberance speech, we believe he is just as early in calling a top in Chinese stocks. With the Olympics coming up next year the most we’ll see this year is a correction similar to the one we say earlier this year.

In April we overall earnings grow by approximately 10% when analysts were calling for growth in the low single-digits. This coming July we’ll see another round of earnings reports that defy analyst logic. Analysts are basing their projections based on what is happening in the United States. Just because things are sluggish, at best, here we’re still seeing amazing growth overseas. Similar to last time the bears will take another beating. Maybe this time around the bears will learn from past mistakes.