Have you heard the latest one going around Washington? It’s about the new Obama diet. Apparently he’s letting Putin eat his lunch. It might be funny if it wasn’t so true. Thirty-one Visas escinded and a few frozen bank accounts are the reprimand for invading another country?

Now Russia’s annexation of Crimea, invasion was probably too strong, doesn’t seem to be rattling this market and perhaps it shouldn’t, if it stops here.

Are we finally recovering from the financial shock of 2008 which saw some of America’s major financial institutions collapse and personal lifestyles predicated on home ownership destroyed? It as a crisis that changed corporate, government and investor behavior, but it’s been five years, long enough for things to heal.

Why’s this important? In my opinion, for two reasons. First, this has not been a normal economic recovery. It has been denominated by monetary policy which has ventured into unexplored and untested territory that has yet unknown consequences when it is unwound. Just consider last spring’s bond market reaction to a suggestion of “tapering” by the Federal Reserve.

Big macro that is. We haven’t seen the newspaper headlines this focused since Greece threatened to take down Europe and the U.S. Fiscal Cliff jeopardized economic growth.

By late summer, the list of topics likely to set the market back had steadily grown to include:

1. The next Federal Reserve Chairman
2. Syria
3. Fed “Tapering”
4. U.S. budget showdown and debt ceiling
5. A failing Italian coalition government
6. German Elections

The S&P 500 finished the June Quarter at 1,606.28. It was up 2.36% for the last three months and 12.63% since December 31st. That compares to -4.87% and-2.45%, respectively, for the S&P/TSX.

Given that I thought we could justify a move of 13.59% for the year on the S&P 500, I thought it might be time to reflect on what we were looking at back in January.

The frightening headlines that warn of the European Union’s break-up, the collapse of major financial institutions and fiscal cliffs have either dulled our senses or have lost their relative importance over the last year. This lack of “macro focus” and “correlated returns” has been giving way to a more normal level of market volatility which I described in detail in my last quarterly “Nothing to Worry About”.

Consequently, the market appears to be a safer place to invest and valuations are rising.

Whew, that was close. There for a while I thought the politicians in Washington might actually come up with a resolution to the “fiscal cliff” and eliminate the last of the big macro issues that we faced in 2012.

Fortunately, they managed to “kick the can down the road”. Yes, they did deal with the revenue piece of the puzzle by increasing taxes on individuals earning more than 400,000 annually and eliminating the 2% payroll tax cut which will hit everyone. So don’t kid yourself; this won’t help the economy, but it won’t push it over the cliff either.

If you’re one of Bay Street’s perma bears you’ve got to be pulling your hair out, one client at a time right now.

Things seemed to be going their way last May when Greece returned to the headlines with an election
stalemate that threatened their remaining part of the Euro. Spain followed up in June with a request for $100
billion to bail out its banks.

The title of this “Quarterly” was a popular campaign slogan used by Bill Clinton in his first presidential run and something that investors would like to see adopted by most of the world’s leaders today.

Concerns over European sovereign debt are still acute but slowing economic growth in China, the United States and elsewhere have bumped it off the top of the leader board as the number one concern. In fact, investors are starting to appreciate that the possibility of sovereign debt defaults are directly linked to economic growth and further European economic contraction will likely drag the rest of the world’s GDP down with it.

On May 6th, the Syriza party, which means “Coalition of the Radical Left” surprisingly came in second in the Greek national election with 16% of the vote. Their leader, Alexis Tsipras, has vowed to cancel the European bailout deal, tax the rich, delay debt payments and cut the defense budget. He would also nationalize the banks, cancel labour reform and pension cuts and re-hire 100,000 public sector employees. The two historically dominant parties, New Democracy party and Panhellenic Socialist Movement (PASOK) collectively received only 33% of the popular vote but missed forming the government by only 2 seats.

We’ve had a “relief rally” since last fall, so now what? The market is up almost 25% since the end of last year’s third quarter.

We saw the same thing last year and in 2010 where a strong start to the year gave way to a market
correction which gave it all back. In fact, last year’s advance gave back almost 20% before bottoming
on October 3rd based on fears that there was no hope for Europe and its debt burdened members.