What a Week!

Story Notes:

• Insignificant headlines dominated this week as stocks around the globe surged to new highs
• Also going widely unrecognized is the persistent tide of protectionist sentiment—a major risk to stocks should the rhetoric come to fruition

Brittney lost custody of her kids, Marion Jones admits to doping, San Diego homes are sliding across the earth, and…Obama won't wear a flag pin! What a news week!

Two of Obama's Rivals Weigh in on Flag Pin
Political Ticker Staff, CNN.com

While we understand those things are all super important, forgive us if we thought the big story this week was stocks' surge. The bull market is back in full swing, and the media barely stopped to acknowledge it as indexes across the globe busted through previous highs.

The fact is, nothing much of significance has happened lately so trivial stories are grabbing all the attention. That's ultra-bullish for stocks. MarketMinder has written about this phenomenon before:

• Peeling the Onion, 9/5/2007
• Grumpy Journos, Happy Market, 8/28/2007

But one story did catch our attention:

Republicans Grow Skeptical on Free Trade
By John Harwood, The Wall Street Journal

The article opens with a frightening statement: "By a nearly two-to-one margin, Republican voters believe free trade is bad for the US economy, a shift in opinion that mirrors Democratic views and suggests trade deals could face high hurdles under a new president."

This chills us to the bone. Protectionism seems to be a politically agnostic issue: everyone's for it. This is crazy. A simple look into history tells you all you need to know—countries that isolate themselves wither and stagnate; countries promoting openness and free trade flourish. It's really that simple. If you don't believe us, try living in North Korea for a few years (and don't forget to send us a postcard!).

The tide of protectionist sentiment simply won't go away, and we continue to regard it as a significant potential risk factor to global markets. It's not just in the US either. Some emerging market countries have recently stalled progress of trade talks, potentially impeding new and freer avenues of commerce:

Doha or Die
By Editorial Staff, The Wall Street Journal (*site requires registration)

For now, this is purely a political issue and little more. Today's political environment simply isn't conductive to major new legislation in the US. Additionally, we think most developing countries recognize the importance of trade with other nations to their growth and general prosperity, making them likely to see the light and ratify proposed trade accords soon. See these past commentaries for more:

• Veto Power, 10/4/2007
• A Presidential Popularity Contest, 7/25/2007
• A Political Punch, 5/31/2007
• Hot Fuzz, 5/17/2007

For now, protectionism remains a threat and not a reality. So savor the trivial headlines—they cut a clearer path for stocks to move upward.