Looking at the FTSE and Dow, have the markets gone back to normal?

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Yet the crisis seems far from being resolved, whilst the markets, at least outside of the euro core, have recovered much of the lost ground.

There are conflicting signals in the market. 2011’s summer slump was meant to have been caused by European economic uncertainty and the possibility of the Eurozone’s violent implosion.

Does this mean the euro crisis is over, or does this mean the fall was not about the euro crisis at all?

While I think it is likely that the worst of the euro crisis is over it is hard to believe, even as a controversial optimist, that a solution is secured. It seems that an unconsummated deal is done, but there is plenty of room for trouble ahead.

The US and British stock markets seems to suggest otherwise – you’d think looking at the recovery of the DOW and FTSE that everything has got back to normal.

A few short weeks ago the markets looked on the brink of meltdown. You’d have been forgiven in thinking that the world had recovered from the accident of Euro vulnerability and was almost on the point of convalescence. What exactly is going on?

First, the US economy at last looks like it has passed its low point. Unemployment is falling and the housing market seems set for bottoming out. The Fed has promised no interest rate rises for the foreseeable future.

An American recovery will see a global recovery – even if the developing world has a rough time for a year or two. While many worry about a Greek default, it is worth recalling that the economies of the PIIGS countries of Europe are equivalent to little more than economy of small US states.

Has Europe’s problems been blown out of proportion?

It could be that we have just enjoyed a “suckers rally” – a reaction against the slump of the summer. Anyone who believes the market is pretty good at pricing assets will know that a strong rally is not created from stupidity, it is a result of millions of separate, carefully calculated transactions. The market being this wrong is highly unlikely.

This all leads to two questions; is 2012 set to be an expected bull market and will stock markets climb up the so called wall of worry?

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