Stage Two of a Cyclical Bull Market

The beast shakes off its lethargy and I finally get rewarded.

When I wrote to my investors in mid-November, I pointed out that the pleasant Indian Summer rally that began in September had carried 17%, and that a retracement of half of the gains, or about 8%, would not be abnormal, and that shallow corrections, though unnerving, were very difficult to time. You have to get both the sell and then the buy-back decision right. In reality, the decline was only 4%. Now after last week many indexes are on the verge of breaking out above their previous highs, and some, ranging from the German DAX to oil service and industrial equipment shares, already have. Emerging markets, on the other hand, have lagged.

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December 7, 2010

Last week there were heartening signs of economic strength around the world. J.P. Morgan’s November global PMI surveys showed a rise in new orders and employment readings for the second consecutive month, buoyed by turns in China, Korea, and Taiwan. In the U.S., vehicle production, chain-store sales, the non-manufacturing PMI, copper, pending house sales, mortgage applications, and the Beige Book all ticked up, albeit in some cases from depressed levels. Abroad, there were good PMI numbers in Germany, stunning ones in the U.K., and another strong surge in the Chinese manufacturing PMI, to 56.6%.

The doomsayers’ consensus keeps saying ...

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