The Counter-Narrative

The market is staging a furious rally this morning on the heels of a – are you ready for this? – Alcoa earnings report.

But seriously folks, we’re in earnings season now and earnings have been one of the few bright spots here in the Balance Sheet Recession.  And that’s got a lot to do with today’s enthusiasm.

You already know everything that can go wrong (Euro breakup, China crash, credit ratings downgrades, new leg down in housing etc).

So by all means keep those issues in mind while I spin the counter-narrative.  Not a prediction, just a reminder that we’ve gotten pretty negative – even dyed-in-the-wool perma-bulls like BlackRock’s Bob Doll are now saying “muddle-through”, this is a great sign.

Your counter-narrative here:

China slows and then stops slowing.  Slack from their real estate deceleration is picked up by the burgeoning Chinese consumer as the party’s Grand Plan to stoke internal demand within shows some signs of coming together.  China goes from tightening to stimulus and the GDP growth rate stabilizes in the mid-to-high single digits.

Europe forcibly restructures Greece, bails out Italy’s banks, they have a recession everywhere except Germany and in the end, nothing is solved but nothing is shattered either.  The rest of the world learns the truth about how unimportant Europe has become to the global economy.

The Sensex (India), Shanghai Composite (China) and Bovespa (Brazil) get their sh*t together and stop going down.  Rate cuts stop the downward slide and an amelioration of US investor fears lead to net inflows to emerging market stocks again.

US GDP growth and hiring surprise everyone.  Corporations pass the baton to the consumer, who is sick and tired of being sick and tired.  Home prices bottom and move higher in almost half of the Case-Shiller 20-city index.  Foreclosures leave the market faster than previously thought.  The rate of spending to fix up homes accelerates.

Treasurys stop rallying on bad news overseas and bad news overseas stops getting our attention.  Half a trillion in erstwhile “risk-off” capital comes pouring out of bonds and into stocks.

Iran stops sabre-rattling and dicking around with the Straight of Hormuz as it faces a reprise of the Green Revolution within it’s own cities.  Oil prices settle back down to natural supply/demand levels in the mid-80’s which acts like a tax cut for the American consumer.

100,000 troops come home and begin to build lives for themselves and their families.  They start businesses and buy foreclosures and speed the velocity of money around the economy with a gush of pent-up desire to consume after years in the desert.

Obama and Romney run neck-and-neck into the election.  Congressional approval ratings climb off of multi-decade lows as unemployment creeps down to 7.5%.  Gay stuff and abortion end up becoming more important come November 2012 than “the economy” in voters mindsets.  Again.

The Nasdaq takes out an 11-year high, the Dow and S&P take out 2011’s mid-year highs.

Anyway, these aren’t “reasons to be bullish” or “outrageous predictions” or anything corny like that – they are simply the narrative we are not hearing from anywhere – even from the bulls.

It’s worth thinking about what can go right sometimes.