The business media has breathlessly chronicled over $19 billion of inflows in the latest week, but that number includes ETFs. The real number is $8.9 billion. This is the largest inflow since March 2000. That was the pinnacle of the tech bubble -- remember what the market did after that month?
Washington Does Not Instill Confidence
As well, it is also my view that the trajectory of economic growth in 2013 (and corporate profits) will also be adversely impacted by the manner in which businesses and consumers react to the tax hikes and the growing animosity and contentiousness in Washington, D.C., in the months ahead. Indeed, I fully expect the upcoming deliberations between the revenge-lusting Republicans in the House and the equally dogmatic and partisan incumbent President and Democratic Senate to not result in any meaningful cut in spending or entitlements reform. I do, however, expect these negotiations to have a direct and distinct adverse impact on economic growth, confidence and profits.
A dysfunctional Washington sows the seeds for reduced consumer and business confidence and risk-aversion, which could lead to slower economic growth. Our economy has never been more reliant on policy. The dependency on our economy and on business and consumer confidence to Washington's ability to compromise and deliver intelligent policy will prove, at the very least, unsettling to the markets in the year ahead. At worst, it will undermine the economic expansion by putting us in lockdown mode.