This is Tom McIntyre with another client only update as of

Tuesday morning the 21st day of February 2012

Stocks moved higher last week in anticipation of a deal over Greek sovereign debt, as well as evidence the economy is not falling into a double-dip recession.

The Dow Jones Industrial Average gained over one percent, while the NASDAQ Composite moved higher by 1.65% led by Apple, Inc.

The Markets & Economy

Events around the world seem to be having a large impact on stock prices. Over the past long weekend, the Chinese announced a surprise easing in their bank reserve requirements, which has helped give a nudge to commodity prices. China is noting its slowdown in exports especially to Europe as a reason for the change of policy.

This along with the quantitative easing being pursued by the Bank of England, the Bank of Japan and European Central Bank is creating a sea of liquidity to offset the deflationary winds of falling asset prices in housing and elsewhere. Today’s earnings report from Walmart, while excellent in most respects, indicates that their recent quarter was impacted by cutting prices. If Walmart is dropping prices, you can rest assured that retail inflation is not a problem here at home and certainly not in Europe.

Thus the bottom line from this backdrop (along with our own Fed’s promise to keep interest rates at zero for two more years) means that the bull market in stocks should continue, barring an event such as an oil disruption in the Mideast - most likely having to deal with Iran’s nuclear aims.

Having said all of this, it should also be clear that these Central Banks would not be in this aggressive mode if the economic backdrop were nearly as rosy as the popular media would have you believe. In a daily report from the Gallop organization, the unemployment rate is officially calculated at nearly 9%, and the underemployment is closer to 19%.  This is in stark contrast to the virtually meaningless and perhaps manipulated figures coming from the Bureau of Labor Statistics.

It has also been recently noted that in addition to the 47 million Americans collecting food stamps, the number of Americans moving from the unemployment lines to the disability lines has increased by the millions. Much of the reason is cited as “mental illness”. Clearly, you get my point. The national media would have you believe America is in a self-sustained economic recovery. To that I say, given the trillion-dollar plus deficits, the zero interest rate policy and the extent of the underground economy, we are not doing all that particularly well. Remember last year’s growth rate as reported by the government was just 1.7% which was lower than the previous year.

Given the number of tax increases scheduled for 2013, absent a change of policy and/or administration, the outlook for next year is dubious to say the least. For now though, high corporate earnings and zero interest rates make stocks the only asset class worth playing.

What to Expect This Week

The economic data is light and not significant this holiday shortened week. As a result the focus will be on this embarrassingly fraudulent deal concerning the Greek sovereign debt issue. I expect the second guessing will begin immediately.

Secondly, the rising concern over possible military action against Iran is impacting the global price for oil.  This is causing gasoline prices to rise to record levels for this time of year despite the fact that demand for gasoline is falling quite strongly (another sign of a less than robust economy). This has caused many to continue to fret about our economy’s growth for the rest of the year. Clearly, Walmart’s report this morning should cause that focus to increase.

The folks at the Economic Cycle Research Institute are due to update their recession forecast from last September. Their weekly index of leading indicators has improved to a year over year growth rate of minus 3.7. This is the best since last August, but is still not at break even.

My view continues to be that the stimulus being supplied from central banks around the world will keep the global economy from falling into a recession, but will be insufficient to set off an enduring period of either growth or prosperity. Accordingly, expect continued attempts by politicians to engage in class warfare versus serious attempts to solve our economic problems. In other words, our economic problems will not be addressed until after the November elections. The manner in which it gets addressed will be determined by which results of the elections.

Many strategists traditionally suggest it does not matter who wins elections. To that I say I don’t buy it. If that were true then why does so much money flow into campaigns from both individuals and corporations? This election cycle will of course see a record amount of money spent by both sides. Someone obviously considers the outcome to be important.