Spring is in the Air

I am reminded that perception is everything. Let’s say I articulate the following to my wife, “Honey you look like the first day of spring today.” She will probably be very pleased and feel very good about herself and be content with me. Now instead let’s assume I am a buffoon, and instead comment to my wife, “Honey you look like the last day of long, cold, hard winter.” Knowing my wife – I would probably be sleeping in the doghouse until next spring when I would finally have a chance to redeem myself.

While the first day of spring and the last day of winter are very close on the calendar, the perception one has from these extremely close events means everything in terms of outcome. For example, the Fed said this week that the economy is still too weak to raise interest rates. Therefore they are going to keep cheap money available for an extended period of time. Since institutions focused on the cheap or almost free money, the market rallied. Had they examined why cheap money was to remain an opposite result may have transpired.

Greece is another perception issue. For some time now it has been noted in many publications that Portugal, Ireland, Greece, and Spain (annotated to PIGS) are not meeting required standards to remain part of the European Union. Greece has been the primary country on the radar screen of late. They have too much debt, too much spending, and not enough income to the point that to issue new bonds to continue operating they might have to offer untenable yields. So they are looking for a helping hand from other EU countries or the IMF. Day to day or week to week different comments are made from those would could help, that cause the US Dollar / Euro exchange rate to rise or fall depending on the interpretation or perception of each comment made.

I feel that for the current rally, this US Dollar / Euro relationship is the key to the next move in the market. If the dollar resumes its rally that started in December of 2009, stocks, commodities, and precious metals will most likely start to go down. If the Greece issue is resolved favorably and the other PIG nations don’t immediately line up for their own handout, then the market rally can continue for a little while longer. The Greece issue has now been pushed out to an EU meeting on March 25 and 26th. Perceptions of a positive resolution will mean everything for the markets.

Until then the markets continue their ascent. They are extremely overbought, but that is secondary to price action. For now the price action remains bullish, but keep an eye on the exits just in case. As with the opening comment to my wife – what a difference a day can make.