There is both good news and bad news coming out of Washington’s attempt to reign-in our government’s deficit spending. The good news – both sides are talking. The bad news – both sides are now slinging mud at each other in their verbal assaults. The big reason for the mudslinging is that it’s easy to TALK about reducing the deficit, but it is incredibly difficult to actually pull it off. To get a sense of some of the immense size of the steps needed, according to one expert, read the following report starting at page 37 – click here

“This one step – choosing a goal and sticking to it – changes everything.”

– Ishmael Scott Reed

I recall exactly where I was when the news broke that JFK was shot. The same for the instant the first plane hit the World Trade Center. And, now for when the news hit that Bin Laden has been killed. Perhaps, Cesare Pavese was correct when he said:

Last week there were more NEGATIVE than POSITIVE developments, but the stock market “climbed this wall of worry” to post a solid increase.

Below is a succinct list of last week’s events:

Positives:
1) Bernanke in his press conference implicitly says the end of QE2 in no way means tightening soon to follow
2) Univ of Michigan and Conference Board confidence #’s up a touch in April
3) New Home Sales a punk 300k but higher than expected
4) Pending Home Sales rise 5.1%
5) Milwaukee joins NY mfr’g survey as exceeding forecasts
6) China HSBC pmi holds steady

Negatives:
1) Chicago, Dallas and Richmond mfr’g surveys below estimates
2) Initial Claims disappoint for 3rd week, 4 week avg back above 400k
3) Durable goods orders ex transports bit below est (but prior month revised up)
4) MBA said purchases fell 13.6% to 2 month low
5) Inflation expectations in confidence data remain elevated
6) Gasoline prices up another $.05 to within $.20 of record high
7) Euro zone CPI up to 2.8%
9) Portugal, Ireland, and Greece yields continue to spike

These are jubilant days for the U.S. stock market, which makes the decision last week by Superman—the cape-wearing superhero, not Fed chairman Ben Bernanke—to renounce his U.S. citizenship all the more perplexing. Is the Man of Steel worried about the dollar’s waning purchasing power, or feeling outshone by Bernanke’s herculean effort in lifting risky assets? Or has he been keeping his 401(k) plan in cash, instead of stocks?

The market was awash in records last week after Bernanke, our money-printer in-chief, signaled an end to the central bank’s Treasury-buying this June but promised to hold interest rates low well beyond that. As the dollar fell for eight straight days to a three-year low, the Russell 2000 index of small stocks joined mid-cap stocks at an all-time high, as did the Dow Jones Transportation Average. Large stocks climbed to three-year highs, while the Nasdaq Composite Index surpassed its 2007 credit-bubble peak to reach its highest close since December 2000.

By keeping their staffs lean and working everyone harder, U.S. companies kept their margins plump and managed to grow their profits much faster than the 1.8% pace by which the U.S. economy expanded in the first quarter. Ford (ticker: F) earned its biggest first-quarter take in 13 years, and profits jumped 36% at Chevron (CVX) and 69% at Exxon Mobil (XOM). Wall Street analysts, who hushed their bullish chorus when oil prices climbed and after the earthquake hit Japan, have resumed raising profit estimates. Over the past four weeks, they’ve raised their forecasts on 702 stocks within the Standard & Poor’s 1500 and cut just 473, says Bespoke Investment Group. That produces a net upgrade of 229, or 15.3% of the index—the most bullish in more than 10 weeks.

Economists seem just as hopeful. While many recently cut their estimates for first-quarter growth to 1.5% to 2%, most still expect U.S. economic growth to re-accelerate toward 3% or so in the second half. Main Street seems a lot less sure, with investors pulling roughly $6 billion from domestic mutual funds over the past two months (Source: Barrons Online).

For the second consecutive week, US Stocks and Foreign stocks and Bonds all increased. During the last 12 months, U.S. STOCKS outperformed BONDS.

Returns through 4-30-2011	1-week	Y-T-D	1-Year	3-Years	5-Years	10-Years
Bonds- BarCap  Aggregate Index	.6	1.7	5.4	5.8	6.3	5.7
US Stocks-Standard & Poor’s 500	2.0	8.8	12.9	-3.4	-1.7	1.3
Foreign Stocks- MS EAFE Developed Countries	2.3	8.4	15.9	– 5.6	-1.2	2.7

Source: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends.