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.
The Consumer Is Spent-Up, Not Pent-Up
In 2013 we will likely discover that there is a limit to the consumer in the face of our dysfunctional leaders' inability to deliver a grand bargain. A payroll tax increase, higher top income tax rates and the Obamacare surcharge, coupled with disappointing capital spending and weak hirings, represent the brunt of the domestic growth shortfall that I envision relative to consensus expectations. Already chain stores sales are turning mixed. Both high-end Tiffany ( TIF) and middle-of-the-road Aeropostale ( ARO) are feeling it.
Policy Alternatives Are Diminishing
U.S. monetary policy is now effectively shooting blanks, and fiscal policy, out of the necessity of a bulging budget deficit, will now switch to be a drag on growth. Moreover, the likely reluctance and inertia by our leaders in addressing our budget could continue to turn off the individual investor class to stocks this year.