A lot of times things happen in the market because the majority sentiment makes them happen.  Imagine this scenario:

A young artist is happy that his art is beginning to sell.  He has just been commissioned to do a portrait for the Mayor on the 3rd anniversary of his office.  He and his girlfriend go out for dinner to celebrate; they start talking about how soon they will be able to qualify for a mortgage and buy a house.  As they're walking toward the restaurant they look at the news stands with large headlines about how things are bad in Europe, China isn't picking up and the US unemployment numbers are still too high to signal a recovery.  They start feeling worried.  Maybe they should wait a bit about getting the house, if the recession hits his income will surely be affected as people cut down on artwork first.  

They get to the restaurant and are still talking, and they decide to be more careful with the money they have. The restaurant owner comes by smiling: "Congratulations! I hear you are doing a painting for the Mayor" he says, "are you celebrating with some champagne this evening?" The couple look at each other and pass a knowing glance.  The young artist turns to the restaurant owner and says "we hear that things are pretty bad in the economy, and there might be another recession coming soon, so we've decided to cut down on spending; we will just have a glass of wine each to celebrate".  

The restaurant owner hears this and starts feeling uncomfortable.  He goes to his office and calls his broker, "cancel that order I placed to buy those shares I wanted.  I hear that things are pretty bad and we are heading to another recession, I want to keep as much cash in hand as possible, and don't want to risk losing money again", then he calls his wife and says "honey, I think we should cancel that trip we were going to take this year, I hear things are pretty bad in the economy we should conserve our resources and ride this out".  His wife is disappointed and she calls the travel agency to cancel - you got it the message spreads like a virus.  

In the final transmission, the Mayor calls the young artist and cancels the commissioning of the portrait.  He says "sorry young man, I hear things are likely to get rough, we will talk about this portrait when things are better". The young artist hangs up the phone in despair and turns to his girlfriend "remember what we were talking about? It's starting to happen already; that was the Mayor, he just canceled the portrait".

See how we contribute to the downward spiral?  In the same way we also contribute to the upward spiral.  Feeling better about how things are is the first step towards recovery and then the manifestation of it follows.

The popular opinion is that the Fed will opt for further stimulus if things don't go as planned.  The plan is to reduce unemployment, increase growth.  the promise is that if that doesn't happen as planned, the Fed will step in to help.
Mr. Bernanke is right in saying that intervention has proved to be a valuable tool in controlling the impact of the recession of 2008, therefore the Fed will be open to using it again - should another recession occur.
The market reacted positively to this signal, interpreting it to mean that further stimulus may be used.  I disagree.  
First of all, we are not in the midst of a recession.  Granted that the growth indicators are below normal, but the important thing is that WE DO HAVE GROWTH! 
If you were recovering from a sickness that almost took your life, don't you think that it would take you a while before you were able to do a 5Km run like you used to before you were struck down?
Well, our world was struck down by such a disease; the virus spread an engulfed all it's organs (countries).  The medicine (stimulus) worked, and the fever came under control in 2009.  But we could not get the virus out of our system.  The virus is now contained in one organ (Europe), the rest of the body is starting to recover, but is far from well.  It is my expectation that vital signs will start returning to "normal" levels by the beginning of next year.   Let's start with a gentle 2Km walk in 2013, and in 2014 we can start doing a walk-run routine and increase our distance.  But the weakness this sickness has created runs deep and we should not expect to do the 5Km run until 2015. 
One of the illusions most people have is that we are only contending with the one virus, whereas in my opinion, we already had a slow spreading virus (debt) in our blood.  Although this virus was slowly eating away at our organs, there were no alarming symptoms so we were able to ignore it.  When we got hit with the Recession virus the Debt virus increased the crisis. We are now done with the first one, but the second one is still around and it is preventing our recovery.  But patience and attention to what is needed will help us recover.  Each individual living on the planet today, needs to make a commitment not to increase their debt burden but to start working on reducing it.  If we all do a little bit, it will add up to a lot - after all that's how the seas and the oceans were made  by a bunch of inconsequential drops.  If we don't we will indeed fall into another recession and it won't be long before it hits us.  We have a choice.  By the way, that's what Dec 21st, End of the World is all about.  We can either work together and come out stronger or we can all perish together - what ever fate we chose we will all be travelling in the same boat in the same storm, and there won't be anywhere for any of us to hide.
Under the present circumstances further stimulus would be absolutely the worst thing for the long term health of the economy.  It would be like a spoon full of sugar, and then we will crash for sure

Sometimes what happens in the markets makes me wonder about people's common sense - correction, most of the time what happens in the markets makes me wonder about people's common sense!
Today the markets are up on the news that retail sales in the US have been higher than expected, and the market has totally ignored the fact that global industrial production has not grown since June. When will the markets catch up? Are people blind to the fact that the US economy is in the process of taking a massive hit due to the drought that continues on?  Is the improved sentiment an injection of pre-election spirit?
Make money in the US while you can, but please don't pledge your allegiance to US investments – things are far from steady in that part of the world.  Hedge your bets by investing in those areas that will benefit from the US’s situation: Mexico, and South America, and of course China and India.  While all eyes are on China in terms of emerging markets, India is making steady progress, ready to step in where ever China shows a weakness.  Chinese and Indian acquisitions of companies around the world continue.  As an Advisor I am keenly aware of the shift that is taking place and the new economic map that is being created as a result of it.

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