As expected, the political left made strides in Europe over the weekend. In France, Socialist candidate Francois Hollande ousted incumbent President Nicholas Sarkozy on a campaign platform that was strongly anti-austerity. In Greece, politicians who supported the last bailout—one which came with extremely deep austerity requirements—were thrown out en masse while a fragmented coalition of anti-austerity candidates were voted in. Even in conservative Germany, local candidates in Chancellor Angela Merkel’s Christian Democrat party lost seats.

The common theme among the winning candidates can be summarized in about three words: “We’re not them.” Indeed, the parties that have been preaching and implementing austerity for the last two years lost handily, and those who promised fewer cuts and more of a focus on spurring growth won.

This change in politics in the Euro-zone may or may not have large consequences for markets. On one hand, the austerity programs implemented thus far have had pretty poor results. As the cuts have been made, economies have shrunk. When economies shrink, debts and deficits (i.e., the sources of the problems in the first place) tend to grow. On the other hand, part of the reason that the deficits and debts grew so much in the first place was due to the fact that the government share of GDP grew very large over decades through ever expanding social programs.

So who is right? Well, they are probably both right and wrong to some degree. To the Socialists point, it’s nearly impossible to get rid of deficits without growth, and austerity has been a definite drag on growth. In the case of France, however, Mr. Hollande has promised to cut the retirement age for pensioners, cut the military and raise taxes on corporations and the wealthy. If anything, these measures will likely serve as a drag on growth, and if they are a drag on growth, the increased revenue to the state may or may not show up.

Markets have taken a wait and see approach, so far. Longer term, we’ll see. Growth is a dynamic that Europe is sorely lacking at current. If the new, leftist politicians in Europe can spur growth, good things could result. If, however, spending increases and growth never arrives, the crisis will likely escalate.

The next few months will be interesting to watch. There will be numerous meetings of Euro-area members, and the tone of the meetings will likely change. While capitalistic markets have historically been best at fostering growth and efficient allocation of capital, it is at least worth noting that strong growth is possible under other structures. Just ask China.

Coming Up: Look for consumer sentiment and wholesale price inflation (PPI) on Friday. We should see no monthly inflation and a slight decline in confidence. Markets will also be watching for any hint of another round of quantitative easing when Ben Bernanke speaks to the 48th Annual Conference of Bank Structure and Competition on Thursday.

The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.

All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data.
Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 12.090.c.5.12

This week is a big week for earnings, as the pace of reporting will increase dramatically. In all, about 180 S&P 500 constituent companies will report results this week.

So far, most companies have exceeded Wall Street’s already scaled back estimates, and aside from simply having a lot of reports, this week will feature many industry leaders. Among them is Apple (AAPL), arguably the growth story of the decade (that comment should not be considered a recommendation to buy, sell or hold the stock).

As of Friday, April 20, about 80% of companies that have reported earnings so far have beaten analysts’ estimates. Another 11% have met estimates. This stands in stark contrast to the last quarter of 2011 when only about half of all companies beat estimates. By the closing bell this Friday, over half of all S&P 500 companies will have reported results, and that will give us a much better read on the health of the corporate sector.

The government sector is another story. Thank goodness, we don’t have an earnings reporting season for governments. If we did, it would probably be sparse and depressing, since not many governments earn profits. This has been a major paradox since the Great Recession began in 2008. Businesses are strong; sovereigns are weak. Corporations quickly cut costs, as they always do during recessions, and they set themselves up to run in a lean, profitable manner coming out of the recession.

Governments, on the other hand, operate on a much longer time frame than corporations. Normally, this would be a good thing, but when the long-term financial assumptions (e.g., pension assumptions, growth assumptions, debt assumptions, etc.) made decades ago by political leaders turn out to be grossly wrong, problems arise. Greece, France and Italy, and in many ways, the U.S. are grappling with these problems today. In short, the many are being asked to pay for the promises of the few, and tensions are rising fast.

Just over the weekend, the government of the Netherlands fell, as the anti-bailout, anti-EU parties gained enough momentum to block a budget bill and most likely bring about national elections. In France, President Sarkozy lost in the first round of French elections to Socialist candidate Francois Hollande who has also trumpeted the anti-austerity, anti-EU trumpet. The run off election will be on May 6. All of this is important to investors. After all, a financial solution in Europe will require a political solution. If the political forces in Europe move further apart, solutions become less likely.

Coming Up: The Federal Reserve Board meets this week, and all eyes will be on the memo released at Wednesday’s conclusion. Everyone is waiting for confirmation or denial of QE3. On Friday, the Bureau of Economic Analysis (BEA) will release its first estimate of Q1 GDP. Expectations are for growth in the neighborhood of 2.5%. It’s not impressive, but it is growth, and it is better than the 1.6% posted in Q4 2011.

The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.

All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data. Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 12.062.c.3.12

We are about a week into Q1 earnings season, and outlining the trends we’re seeing seems timely. As you may recall, we explained that 2012 would likely be a year of still positive economic growth as well as positive, yet slowing, earnings growth.

Wall Street analysts, usually a somewhat optimistic bunch, have been tempering down their expectations for almost a year now, bringing their Q1 expectations for S&P 500 operating earnings down from about $26.50 last July to about $23.80 as of Friday. That is a decrease of 10% for those of you who don’t have a calculator handy.

The culprits to the decreased expectations are many. The most obvious are increased costs, and the one in the headlines currently is energy. Industry uses a lot of energy to run factories and distribute goods, and those costs have gone up. When costs go up, all else equal, profits go down.

Other costs are also beginning to creep up. Labor, is also getting more expensive. After the largest lay-off spree in generations, the employment situation now looks to be improving, and with that comes higher wages. According to the Bureau of Labor Statistics, the most recent reading of non-farm unit labor costs showed growth of over 3%.

The other side of profitability is revenue. Revenue growth has been slowing, yet it remains positive. After growing by double digits for much of 2011, single digit revenue growth is expected for 2012. The biggest concern among analysts is pricing pressure. Will companies continue to be able to get top dollar for their wares, or will competition heat up and cause price wars? While good for the consumer, pricing cuts are a drag on revenue. This will continue to be something to watch.

So how are companies doing so far? Pretty well. While we are very early in the reporting season—only 32 of the 500 S&P stocks had reported as of Friday’s closing bell—about three quarters of companies have beaten estimates on earnings and over 80% beat on revenue.

Looking past Q1, it will be very interesting to see how profits and revenues progress. It will be equally interesting to see if a better than expected Q1 earnings season will lead analysts to ramp up their expectations for future quarters.

Coming Up: If you haven’t paid your taxes yet, you have until midnight on Tuesday to do so, so get out the abacus and get to work! Earnings reports will come in from heavyweights like McDonalds (MCD), American Express (AXP), Goldman Sachs (GS) and Bank of America (BAC). On the international front, French elections will be the focus of the week, but markets will have to wait until next week to react since the vote is on Sunday. The major competitor to Nicholas Sarkozy, Francois Hollande, is running on the Socialist and Radical Left Party (I did not make that name up) ticket and has loudly sounded the anti-bailout anthem. Should he oust President Sarkozy, German Chancellor Merkel could lose her strongest ally, and the European Crisis financial crisis could get very interesting.

The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.

All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data.
Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 12.082.c.3.12

Markets got jittery last week on a couple pieces of macroeconomic news, but given how the same news might have pummeled markets last fall when a Euro zone break up and a Greek default were being weighed, the declines seem modest. The mood of the day does, indeed, matter.

Early in the week, Spain had a very weak bond auction, selling only about €2.6 billion of the available €3.5 billion of government debt. Given the backdrop of Spain’s weakening GDP, rising deficits and one of Europe’s more severe unemployment situations, the weak auction was a damper on bond market confidence.

Spain had implemented a deficit reduction program to cut government spending just the week prior, and the weak auction can certainly be read as a vote of no confidence by investors. As we saw with Greece, one weak bond auction can lead to another, which can lead to another. Before you know it, interest rates are in the double digits-when demand is weak, bond prices go down, and yields go up-and then you’re are asking the IMF, the European Central Bank and anyone else who has money for a bailout.

Spain does not appear to be in bail out territory yet, but clearly, the private market of bond buyers (i.e., those who would actually like to be paid back in full) is skeptical. The more skeptical the private market becomes, the higher yields likely go, and as with Greece, there is a tipping point. Once that tipping point is tripped, government buyers are all that is left, and that, of course, is a bailout.

Here in the States, markets were closed for what many may argue was the biggest economic report of the month-the jobs report. We added jobs in this country in March. Unfortunately, we added far fewer (120,000) than most economists had expected (200,000).

While the stock markets were closed for Good Friday, bond markets did have less than an hour left in a holiday-shortened trading session to react. React, they did, driving yields down on the 10-year Treasury by 12 basis points, pushing 10-year yields again toward the 2% level.

It wasn’t the best of weeks for market related news, as bond market skittishness ruled the trade. After almost six months worth of advances, however, we would be wise to take a bad week in context and stride.

Coming Up: Earnings season kicks off this week. After last quarter’s fairly anemic, but still positive, reporting season, we will be watching intently to see trends on profit margins, revenue growth, sector trends and earnings strength. Among the first reporting will be Alcoa (AA), JP Morgan Chase (JPM) and Wells Fargo (WFC). On the economic front, look for the Fed’s beige book on regional activity on Wednesday and Chinese Q1 GDP on Friday.

The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.

All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data.
Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 12.062.c.3.12

Over the weekend, Europe solved its debt crisis and U.S. leaders put their own ambitions aside and voted to put our country on a sustainable path toward debt reduction. Goldman Sachs even got into the act by vowing to donate its entire 2012 corporate profit to charity. April Fools!

Okay, I know…bad joke. What wasn’t a bad joke were the returns enjoyed by stock investors in the first quarter. As the year-to-date (YTD) numbers in the table above show, many stock indices achieved first quarter returns that could easily be considered attractive for a full year, much less a single quarter.

What was the catalyst for such great returns? Frankly, it’s impossible to single out one reason for such strong gains, but there were a few factors that helped. At the top of the list was Greece. While a firm solution is not in the books, more austerity measures were pushed through, and a reduction in outstanding debt seems to be a done deal.

Continuing improvement in the U.S. economy was also helpful. Fourth quarter GDP came in around 3% and consumer confidence and spending continued to improve. Even housing showed a pulse. The only real immediate fly in the ointment in the U.S. is gas prices which have been climbing uncomfortably toward their all time highs reached in 2007.

With the S&P 500 up over 20% from its October 2011 lows, it’s only natural to wonder, “How long can the gains last?” Of course, that is an unanswerable question, but as always, we have a few thoughts.

Much of the last few years of market activity has been influenced by macroeconomic issues, and we expect that to continue. Should any of the known (or unknown) issues in Europe, China, the Middle-East or here at home begin to percolate again, we may see some more volatility. Earnings growth is expected to slow this year, but it is expected to remain positive. Valuations are still reasonable (but not cheap) in our view, so if earnings growth continues, we don’t see lasting market declines as being a foregone conclusion.

At the same time, we can’t help but remember how well 2011 started off, only to see a dramatic summer decline followed by a strong winter rally. Will the same be in store for 2012? It would only be natural for the market to experience a correction after such an impressive run. At the same time, those looking for easy and repeatable patterns in the market usually find themselves flummoxed more often than not. If it were that easy, there would be no market.

Coming Up: The first Friday of the new month means jobs report. The consensus among polled economists is for gains of about 200,000 with an unchanged unemployment rate of 8.3%. U.S. stock markets will not be available for comment on the results of the report, as markets will be closed for Good Friday. Bond markets will be open for a half day. Happy Easter!

The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.

All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data.
Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 12.062.c.3.12

There has been a lot to dislike about the bull market investors have been enjoying since March 2009. Trading volume has been low, suggesting that many investors have not participated in the over 100% appreciation of the market since the lows. Unemployment has been stubbornly high, savings rates have been stubbornly low, and the list goes on.

Among the most frustrating of issues for many has been policy uncertainty. To be sure, investors and business people don’t know what tax policy will be after this year, they don’t know how or when Europe will be able to solve its debt crisis, they don’t know if Chinese officials can engineer a hard of soft landing for their economy, they don’t know how our own government will get its fiscal house in order, and, by the way, we have an election late in the year. For the sake of piling on, we also have the Supreme Court taking up the Constitutionality of President Obama’s healthcare law as I write.

Every one of these issues relies on the decisions of policymakers, and speaking broadly, few have shown much ability or willingness to play nicely together in the metaphorical sandbox that is Washington D.C. While markets would likely react positively to clarity on many of the issues above, gridlock or even the lack of a solution is sometimes better for politicians than solutions. In election seasons, that dynamic has an unfortunate history of becoming more acute.

The Supreme Court should add at least a piece of clarity in the coming days to one of the issues outlined above: Healthcare. A few lower court judges have upheld President Obama’s healthcare law, and other lower court judges have ruled that part of it is unconstitutional. One has ruled that the entire law is unconstitutional. It’s now up to the Supreme Court.

Justices are hearing arguments this week, and the case hinges on one main fundamental question: Can the government require that you and I carry health insurance? If the Supreme Court rules that the government can mandate coverage, the law is likely to stay intact and will only face future challenges on the legislative front. If, however, that aspect of the law is ruled unconstitutional, the big question that the court will need to answer is whether or not the entire law is null and void or if only the part that mandates that everyone carries coverage must be thrown out.

Because of election season, it’s hard to imagine that tax policy or U.S. fiscal policy will see much clarity before the vote. As for Europe, most sights have turned away from Greece for the moment only to become set on Spain and Portugal. Both economies are far larger than Greece, and while their problems are not yet as great, size matters. I haven’t even mentioned Italy, an economy with outstanding debts that are larger than Greece, Portugal and Spain combined.

Coming Up: The Supreme Court will probably be the big news of the week, but there are some scheduled economic releases as well. Durable goods orders (Wednesday) for February are expected to rebound after declining in January. Also look for Personal Income and Outlays (Friday) is expected to continue to show growth.

The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.

All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data.
Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 12.061.c.3.12

Federal Reserve Chairman Bernanke and crew met last week, and while no real policy changes were made, some of the comments almost sounded hawkish. By hawkish, of course, I mean that there were voiced worries by some in the meeting that maybe the policy of easy money should be reconsidered, lest we risk the possibility of rising inflation.

This was enough for some analysts to begin to wonder if the Feds "late-2014" target date for holding short-term interest rates near zero may be too far off. If the economy can continue to improve and job growth can continue, might the Fed start increasing rates sooner than we all think? Will there or won’t there be a QE3 (more quantitative easing) aimed at keeping longer-term interest rates, those against which mortgages rates are set, low?

Bond markets didn’t wait to find out. As the table above shows, yields on long-term Treasuries spiked last week. Now, in all fairness, they are still at very low levels historically speaking. One has to wonder, however, are the lows in long-term rates now in our past? If economic growth maintains, if Europe only suffers a mild recession, if China avoids a hard landing, and if a little confidence can find its way into markets, a strong case could be made that rates should rise. Of course, should any one of these falter, yields could very easily turn lower once again, as fearful investors flood into Treasuries.

A popular saying in the markets is, "Nobody rings a bell at the top." In other words, we only know that a top (or bottom) has been made in hindsight. Will we look back in a few years and see that the low was put in last winter? Only time will tell, but if we do, it will likely be because things (e.g., economic growth, employment, etc.) have gotten better. Seems like a fair trade off to me.

Speaking of things getting better, Apple’s (AAPL) fortunes continue to get better and better. Last week, they became America’s first half-trillion dollar company. Almost $100 billion of its market capitalization is in cash, and this morning, the board approved a dividend and a share buyback.

To state the obvious, a half-trillion dollars is really a lot. For perspective, in 2010 there were only 19 countries that had GDP above a half-a-trillion dollars, according to the IMF. Now for the disclaimer: I am only discussing factual information about Apple. Nothing said herein should be interpreted as advice to buy, sell or do anything with Apple shares.

Coming Up: February housing numbers will be the economic focus this week, as Housing Starts (Tuesday), Existing Home Sales (Wednesday) and New Home Sales (Friday) are all released. As with so many economic and recovery indicators of the last few years, all three releases are expected to confirm slow, yet improving, growth.

The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.

All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data. Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 12.055.c.3.12

Markets finally corrected a bit last week, with the S&P 500 suffering its first loss of over 1% in 2012. By the end of the week, bond yields were a bit higher, and stocks were mixed, having made up most of their losses from earlier in the week by the closing bell on Friday.

So what happened last week? For starters, we witnessed the first sovereign default by a western government in the last 60 years. That default came, as you probably know, from Greece. The country was able to avoid defaulting on most of its debt by swapping its old "bad debt" for new debt with lower principal values, longer maturities and more favorable interest rates. In other words, bondholders took a "voluntary" haircut on their debt.

Not everyone agreed to the debt swap, however, to which Greece said, "tough." In saying "tough," Greece triggered a "credit event," which is basically a default. In the world of fixed income, any missed interest or principal payment is a default. Greece didn’t default on all of its debt, just the debt that wasn’t swapped. There is a lot of speculation that the likely holders of the debt that wasn’t swapped were hedge funds who also held credit default swap (CDS) insurance on Greek debt. Basically, the value of the swap (i.e., the insurance payment they’d receive) may have been higher than the value of the debt, so a default could have been profitable for the holders of the CDS.

While the European sovereign debt drama is far from over, it seems that this chapter may have been much ado about nothing. Stocks had the one "big" down day on Tuesday but recovered much of the loss by the end of the week. Isn’t it ironic how investors have figuratively tossed and turned at night worrying about a Greek default—enduring a scary market correction in each of the last two years—and now that we are at the zero hour of default, stocks react with a shrug.

A popular saying among traders is, "the reaction to the news is more important than the news itself." European leaders bought time over and over again with half measures. Many could argue that they made the crisis worse, and in a way, they may have, but they bought time. In doing so, they built a consensus, they slowed down the process and they built new safeguards aimed at avoiding contagion.

It will now be interesting to see how other indebted nations like Portugal, Spain and Italy handle their future negotiations on debt. Has a framework been setup for future actions, or will bondholders be more hard lined in their negotiations next time? How much time do governments need, and how much can they buy? Lehman Brothers didn’t have two years. Lehman had a weekend, and a weekend simply wasn’t enough to save the firm.

Coming Up: A lot of economic reports hit this week with Retail Sales (Tuesday), Producer Prices and the Philadelphia Fed Survey (Thursday) and Consumer Prices and Industrial Production (Friday). All measures are expected to remain firmly in slow growth territory.

The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.

All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data. Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 12.055.c.3.12

The Republican Presidential primaries may be nearing their final phase this week, should Mitt Romney sweep caucusing on Super Tuesday. To become the nominee for the Republican Party, one of the candidates will need to win 1,144 of the 2,286 (i.e., a majority) of the delegates. As of today, Romney leads the count with 173, followed by Santorum (74), Paul (37) and Gingrich (33).

In all, 437 delegates are up for grabs on Super Tuesday, and the polls are showing that Romney will likely win more than any of the other competitors. While a Super Tuesday win will not cement a Romney victory, history is very much on the side of the candidate that comes out of Super Tuesday with a strong lead.

Based on historical primary races from both parties, whoever ends up as the candidate will most likely shift their message quickly. They will go from being the solid party line candidate to the candidate of moderation and change while painting their new competitor (President Obama) as the extremist. It’s an odd game, indeed.

In money news, markets were relatively flat last week. After the substantial rally off of last fall’s lows, the stocks have run into resistance near the high marks reached last summer. It is said among traders that excesses (high or low) can be worked off through time or price. In other words, markets don’t go straight up or straight down forever.

When moves are dramatic one way or another, there is usually a corrective move in the opposite direction (i.e., a price move). If there is not a corrective price move, there should be a consolidation where the market just trades in a flat manner (i.e., time). Even in the face of rising oil prices, markets have been able to partially work off their overbought conditions through time rather than price. So far, so good.

Economic news remained decent last week. While there were a few weak numbers like ISM manufacturing and durable goods orders, they were not recessionary by any means. Some numbers were good, including Personal Income (up 3.6% year over year), weekly jobless claims (down 2,000) and consumer spending (up 3.8% year over year). In fact, the news of late has been good enough that Fed Chairman Bernanke signaled it was unlikely that the Fed would embark upon any new stimulus measures in the near term. At this rate, "so far, so good" has been enough for the markets to hold their gains.

Coming Up: It’s a new month, and that means the jobs report will be out on Friday. The consensus of polled economists currently expects that about 200,000 jobs were created last month. The unemployment rate is expected to hold steady around 8.3%. Thursday will be the deadline for Greek debt holders to ratify their debt swap. According to Bloomberg, 75% of the bondholders will need to approve the swap which would exchange existing bonds for less valuable bonds that pay lower interest rates in order for it to be deemed "voluntary." Failure to reach an agreement may bring back the risk of triggering credit default swaps, and this could certainly stress markets. Again, it is an odd game, indeed.

The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.

All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data. Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 12.050.c.2.12

Did you drive by a gas station over the weekend or on your way to work this morning? Ouch. Prices have been creeping up, rising by over $0.80 nationally since November. On the East and West coasts, per gallon prices have already exceeded $4.00 per gallon. Prices have risen enough that now the mainstream media has started printing headlines like, "Gas Prices Climb for 20th Day," (CNN) and "Gas Near $4? Time for an Energy Policy" (Fox News).


Has this changed your behavior? Are you more anxious when you fill up? Do you feel an urgency to get gas now in fear of having to pay more later?

I must admit that I considered pulling into the gas station this morning—still sporting almost a half a tank—because I felt an urgency to buy gas. I didn’t need gas, but that little voice in the back of my head was telling me, "You better fill up before prices go up further." Was that urgent little voice pestering me last fall when gas was almost a dollar cheaper? No.

This is the psychology of inflation in its simplest form. People fear rising prices, so they buy quickly. This happens when gas prices rise, but it also happens elsewhere. Consider the housing boom when people were lined up around the block to buy a basic condo in Miami or Phoenix. How about the Tickle-Me-Elmo craze a few Christmases back? And, how could we forget the Beanie Babies craze of the late 1990′s?

All of these inflationary bubbles had the same thing in common. There was a feeling of scarcity and the fear of missing the boat, so people compete to pay up and buy quickly. The irony, of course, is that this behavior by enough people may actually help to cause the scarcity and inflationary forces of which everyone is already scared.

This differs dramatically from the psychology of deflation (i.e., falling prices), where participants are compelled to hold off on their purchases in hopes of getting a better deal later. This mentality causes gluts rather than shortages and falling prices instead of rising prices.

Just look at housing today. Five years ago, homes would have been sold above asking price before ground was even broken for construction. Today some homes have sat empty for years with no bids. There is an expectation for lower prices in the future, so no one buys now. In a way, doesn’t this remind you of the overall psychology of the stock market over the last decade or so?

Coming Up: A lot of macroeconomic news will hit this week. Look for durable goods orders (Tuesday) to show a month to month decline. Yearly growth should remain strong. Also look for the final Q4 2011 GDP number (Wednesday), Personal Income & Outlays (Thursday) and the ISM Manufacturing Index (Thursday). All three measures should help to confirm the expansion.

The views and opinions contained herein are those of Bellatore Financial, Inc. and have been researched and analyzed by Kane S. Cotton, Chief Investment Strategist, Capital Allocation & Management.

All Indices are unmanaged and are not available for direct investment by the public. Past performance is not indicative of future results. The NASDAQ Composite Index measures the performance of all issues listed in the NASDAQ Stock Market, except for rights, warrants, units, and convertible debentures. The S&P 500 is based on the average performance of the 500 industrial stocks monitored by Standard & Poor’s. The Dow Jones is computed by summing the prices of the stocks of 30 large companies. The Morgan Stanley Capital International (MSCI) Europe, Australia and Far East (EAFE) Index is a broad-based index composed of non U.S. stocks traded on the major exchanges around the globe. The Wilshire 5000 Total Market Index represents the broadest index for the U.S. equity market, measuring the performance of all U.S. headquartered equity securities with readily available price data. Capital Allocation & Management is a managed money program offered through Bellatore Financial, Inc. 12.041.c.2.12