Thursday, April 30, 2009
Daily fiscal drain continues, but is market rally vulnerable?
The net, daily drain from tax collections continues (see chart below), but does that mean the stock market rally is vulnerable to a renewed decline?
The answer is, probably not. That's because two other things have occurred, or are occurring, at the same time.
First, bank credit appears to have stopped contracting. So whatever quantity of its own money the government siphons off as a result of tax collections, the private sector's money--credit--may be about to start flowing again.
Secondly, and perhaps most important, is the fact that households have a $455 billion cache of personal savings to draw from: near-record levels. This virtually ensures that the stock rally will continue, as long as confidence keeps improving.
Your strategy should continue to be to buy dips.