Things couldn’t look rosier for stocks these days. Virtually every index we follow is making highs – either recovery highs or in some cases all-time highs. Even utilities had a nice move last week, and are close to a recovery high. Financials too are doing well. The S&P is at a recovery high of 1325, and the Dow, at 11,577, has passed its 2000 high.

Strong too are most of the commodities. The CRB index has made historical highs. Copper prices are soaring. So are aluminum and silver. In fact, no one seems to be in the mood to sell anything these days. Least of all the market specialists who are still declining to go short. And when specialists don’t short, it’s because there are no sell orders.

Well, if the smart money can’t find any reason to sell stocks at these prices, who are we to argue? Growth too is certainly a powerful tonic for stocks, so as long as the economy is growing, we’re comfortable owning stocks.

The only thing that could spoil things for stocks is inflation. But so far, despite the rally in commodities, inflation figures remain relatively subdued. How long they will stay subdued is anyone’s guess. The seeds for higher inflation have been planted, but they have yet to bloom, and the market sees it as no threat.

Looking beyond the horizon, however, we do see some cause for concern …

GROUPTHINK FROM THE MERCHANT’S HOMETOWNRead more...