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Great stocks day. Can it last?

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by Peter Switzer

Very good US economic news and what looks like very good news out of Europe made a goose out of the experts who sold our market down too heavily yesterday. So you can expect a big rebound today locally.

The Dow was up a big 123.13 points, or 0.96 per cent, to 12,904.08 while the S&P 500 beat the important 1350-level to finish at 1358.4, up 14.81 points or 1.1 per cent.

Market mover

The big market mover was based on reports that central banks in the eurozone were up for swapping old Greek bonds for new ones, which looks like a real dealmaker for those in the Greek debt bailout.

The news was so well received that the euro spiked against the greenback, which is always a good sign. There were also comments from European Union officials about a sign-off on the deal for the Greeks on Monday.

Reuters says market consensus believes the Greeks will avoid a disorderly default but if this proves wrong you can expect a big stocks sell-off.

"The market is probably pricing in a better than evens probability that a near-term deal will be reached on Greece and avoid a messy default, which suggests there are more risks to the downside for the euro if there is no deal on Monday," Adam Cole, global head of currency strategy at RBC. In case you forgot, the Greeks need to pay 14.5 billion euros by 20 March but a deal has to be placed way before then.

What can the ECB do?

Sitting behind all of this is the European Central Bank’s Mario Draghi who has virtually said he can’t help Greece but if he thinks the eurozone is committed to fiscal discipline we will see what we can do to help the eurozone. This implies that he can provide liquidity to the collective economy but he’s also saying there’s no deal if the member countries don’t show me that I can trust them!

US data

Helping the market, US jobless claims fell close to a four-year low and January housing starts beat expectations significantly.

Another good omen was the Philadelphia Federal Reserve business activity index, which came in at 10.2 when economists expected 9.5.

In case you’re interested, and I’m not, Moody’s pointed to a number of European countries heading for a downgrade. Yes, we all get it, many EU countries are bad risks but debt ratings agencies are like newspaper stories looking at history — they seldom tell us much in advance that could actually help us!

Can the good news last? It will eventually and a boom will take hold but we’re in for good and bad news. I suspect good will, day by day, start to outweigh bad. That’s why I’m long stocks.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Friday, February 17, 2012

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