U.S. economic growth has surprised to the upside.  The S&P 500 has rallied up 5.29% this past month and financial stress in Europe is dropping.  Insolvent countries are lending money to insolvent banks, so the fundamental risks in Europe are still very high.  However, it is possible now that the European Central Bank is loaning more than one trillion euros to European banks at very low rates on basically any collateral, that some of this printed money is finding its way into the financial markets. At the least, it appears to have bought Europe some extra time.  This is causing stock prices to “melt up” on low volume.

Some long term trend buy signals have triggered so we have been investing money back into the market for clients who can tolerate the risk - realizing that the risk of a whipsaw (e.g. stock prices break into bull market territory and then head back down) is high.  Stock prices go down much more quickly than they go up.

Successful investing requires us to be objective and change our investment strategy as the facts change. 

Europe has announced a number of policy changes to try to "kick the can down the road" to buy them more time. Kyle Bass, in an extended interview with AmeriCatalyst points out that financial markets don't do a good job of signaling how long the road is. When they get fed up with giving you road, they take it away rapidly at the end – just like they did with Greece. The end comes quickly.

Using the Lehman Brothers default as an example, Bass explains how we have been conditioned to believe there is always a backstop or savior out there. Countries can't default.  They believe that the IMF, ECB or Fed will save them.

Kyle Bass earned millions betting against the subprime crisis during the last credit crunch and has made large bets this time that the PIIGS will default. He believes that the default of Greece will be the initial trigger of a domino effect of defaults among the most highly indebted nations. He believes that Greece, Portugal, Ireland, Italy and Spain will default and that we are moving closer to what appears to be the beginning of a global financial crisis of epic proportions.

He also believes that Japan will default and that it is going to be the biggest problem the world faces.

You can't help but long for simpler times when the U.S. manufactured and sold more than it bought and investing wasn't the equivalent of riding a roller coaster.

I wish I had better news.  The issues with the European sovereign debt crisis are very complex and key facts keep changing.  The EU and central banks are trying all sorts of “policy surprises” to try to regain market confidence to “kick the can down the road” further.