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at the bell

If there's a bear left in the house, would you please put up your paw?

Optimism is the mood du jour as North American markets swing into first-quarter earnings season this week. Alcoa kicks off the season when it reports after the close of the market on Monday. Consensus forecasts are for the aluminum maker to reveal a profit of 27 cents (U.S.) a share, more than double the 12 cents a share it earned in the year-earlier period.

Analysts have high expectations for other companies, too. First-quarter S&P 500 earnings are predicted to show 11.5-per-cent year-over-year growth, according to Thomson Reuters - and that's despite the fact that the easy comparisons to depressed 2009 profits are over, and companies will now be measuring earnings growth against robust 2010 numbers.

Some analysts expect actual earnings to surpass even the consensus forecasts. StarMine, a stock market analytics service owned by Thomson Reuters, predicts that several companies, including Pacific Rubiales Energy Corp. and Caterpillar Inc., will handily beat estimates.

And profits aren't the only things going up. "The hot money has built up a head of steam, and like a freight train, it's rumbling down the track, allowing nothing to get in its way," writes Avery Shenfeld of CIBC World Markets Inc. in his weekly note. The hot-money express is loading up on currencies, such as the loonie, that have high yields and the backing of commodity-based economies. It's already pulled oil prices to 30-month highs and gold to record levels.

Of course, all this buying is based on the notion that we're in the middle stage of an enduring recovery. If this business cycle were typical, the recent spate of strengthening economic numbers would leave little doubt about that diagnosis. But the current rebound is not a garden variety boom. Fuelled by quantitative easing, rock-bottom interest rates and massive government stimulus, it's a unique creature and historical comparisons may prove to be deceptive.

Richard Fisher, president of the Federal Reserve Bank of Dallas, spooked markets Friday by mulling that the U.S. central bank has overstayed its welcome in the market and should consider cutting short its $600-billion (U.S.) quantitative easing program, under which it's creating money to buy huge amounts of government bonds. "Inflationary pressures are gaining ground in the rest of the world," Mr. Fisher told Bloomberg. "My gut tells me that this will result in some unpleasant general price inflation numbers in the next few reporting periods."

Left unspoken in Mr. Fisher's comments was the prospect that the Fed could suddenly move from inflation dove to inflation hawk. If it decided to lift interest rates, stock and bond markets would get a very painful surprise.

Market watchers will be keeping a close eye on economic data over the next few weeks to see which way the Fed will lean. One worry is that rising food and oil prices will ripple through the global economy, leading to a wave of price increases and less money for consumers to spend on other goods. That could crimp profit margins in industries ranging from airlines to fast-food restaurants.

Key data out this week in the United States include industrial production and capacity utilization numbers on Friday. On this side of the border, the Bank of Canada will announce on Tuesday its latest decision on interest rates, but no one expects it to do anything but stand pat in the middle of a federal election campaign. More insight will come Wednesday, with the release of the central bank's quarterly Monetary Policy Report, which will provide a detailed analysis of the state of the Canadian recovery.

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