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Are We in a 'Bad News Is Good News' Stock Market?

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And, more importantly, will current conditions last?

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Consumer sentiment is down, stock indices including the Dow (INDEXDJX:.DJI), S&P (INDEXSP:.INX), and Nasdaq (INDEXNASDAQ:.IXIC) are up. Eurozone GDP expectations lowered eurozone stock markets a la DAX (INDEXDB:DAX), and the FTSE 100 (INDEXFTSE:UKX) rose in response.

What gives? Well, we may have just entered that odd market environment when bad news is good news and good news is great news. Is this being caused by inflows into equities? Maybe. But the real question is whether or not this quasi-Goldilocks environment will continue. We'll see.

Back in Worryville, the Davos crowd has a lot to talk about. While there is likely a good amount of congratulatory back-slapping over keeping the global financial from incineration (second time in five years), there remains those pesky problems like negative growth in Europe and Japan's latest, greatest plan for creating inflation. Nothing a few really swellegant dinners can't solve.

The Wall of Worry stays at 23, but barring the emergence of an unknown unknown hitting us, it may start dropping, and soon. Again, we'll see.

Click on the link below for an interactive version of the Wall of Worry or scroll down for the text-only column.



Lloyd's Wall of Worry -- Text-only version

QE: Japan takes the QE mantel as they declare a 2% inflation goal. "So it is said, so it is written!"

US ECONOMY: Seemingly on the precipice of improvement unless some global event or government-created crisis emerges. On second thought, never mind.

UNEMPLOYMENT: New record hit in Euroland. As economically confused as they are, they do know that more is less in this case, right?

INVESTOR SENTIMENT: Institutions feeling peppy, but retail bullishness is still about as rare as the 2-centimeter long Devils Hole pupfish, population: 75.

HOUSING CRISIS: Normalizing in a hurry as inventories are down, shadow inventories are down, and lying about what you can get for your house is up.

EUROPEAN ECONOMY: The centerpiece of most conversations at Davos again this year: short, depressing conversations.

CONSUMER SENTIMENT: Foghorn Leghorn moment: "I...I…I said get out your slide rule, boy, 'cause when taxes go up, people, I said people, they feel down."

SOVEREIGN DEBT: Almost out of the woods, I guess? My head hurts.

SPAIN: How do you take the "joy" out of Rajoy? Take a poll, as his popularity is back to an all-time low.

VOLATILITY: So low that its making people nervous. "If it's not one thing, it's another..."

HIGH FREQUENCY TRADING:
Lloyd: What's up?
HAL: Feeling blue.
Lloyd: Post-holiday letdown?
HAL: Post-holiday volatility letdown.
Lloyd: How can I help?
HAL: Panic. And tell your friends to do the same.

CHINA: Our economy, you ask? "Don't you worry 'bout a thing..."

STOCK MARKET TECHNICALS: Don't look now, chart readers, but the fundamental crowd may be taking the stock market steering wheel for a while.

GLOBAL ECONOMY: Emerging markets to the rescue! Please.

SPENDING CUTS: The promised crew cut is looking more and more like "just a little off the top and leave the sides alone."

JAPAN: Verbal jousting with China over a small chain of islands known in Japan as the Senkaku Islands and in China as the Diaoyu Islands, hence the problem.

GREECE: When the good folks are chopping down trees to burn to keep warm, it's time for someone to do something. Time!

DRAGHI: No interest rate cuts for you!

EARNINGS SEASON: "I'll take two more servings of uneventful with a side of somewhat positive expectations, please."

DEBT CEILING: All involved have figured out that this is a lose-lose issue to mess with. And it only took them two years to figure it out – hear, hear!

SEQUESTRATION: Looking like they may hit full force. Man, what kind of military industrial complex are you, America!?

US CONGRESS: Swearing in the new 113 Congress. I don't know what's worse, the swearing or the number 113.

US PRESIDENT: Only the president of the so-called wealthiest country in the world could consider starting a platinum coin collection.

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What Is Lloyd's Wall of Worry?
by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.
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