What a month December has been so far for the stock market. The Dow Jones Industrial Average is up 3.5% in the first two days of December—its biggest two-day rally since July.

What’s fueling the rise in stock prices? Several factors.

First and foremost, investors have nowhere else to park their cash. Who wants to buy bonds paying mediocre returns? Investors are staying away from real estate because it’s still considered to have the plague. Hence, stocks and gold are the only game in town for investors.

This morning, news comes that banks in one of my favorite countries in the world to visit, Italy, are seeing borrowing costs jump on concerns about Italy’s finances and debt situation. Problems persist in other euro countries like Greece, Ireland, Portugal and Spain.

All of a sudden, the stocks of major American corporations, some of which generate more sales each year than Greece’s or Ireland’s annual GDP, look attractive.

I’ve been telling my readers to buy stocks for months (actually, 20 months). And I still think it’s not too late.

This morning, the Dow Jones Industrial Average opens only 89 points below its post-crash high of 11,451. Do I think the Dow Jones will march onto a new 52-week high? Yes. And we could see that action sooner than the majority of analysts expect.

Michael’s Personal Notes:

The Goldman Sachs Group, Inc. (NYSE/GS) said yesterday that bank stocks are a “buy,” singling out JPMorgan Chase & Co. (NYSE/JPM), Citigroup, Inc. (NYSE/C), and Bank of America Corporation (NYSE/BAC) as the top picks. The Dow Jones U.S. Bank Index jumped 3.3% on the news.

I disagree with Goldman. New, more stringent rules make investment banking profits harder to come by these days. The Dow Jones U.S. Bank Index is down 63% since the boom days of 2007, a big laggard compared to other sectors like retail that have rebounded nicely from their recession low.

The government still has plenty of stock in Citigroup to sell and the mortgage fiasco continues. Imagine being Bank of America and having a slew of defaulted mortgages you want to foreclose on, but you can’t because state governments say that you didn’t cross the t’s in your paperwork.

The banks still face real problems in the U.S. As for Canadian banks, their stock prices have risen too high, while their profits have not kept up with their rising stock prices.

I’d stay away from the banks for now. But who am I compared to Goldman Sachs to say?

Where the Market Stands:

The Dow Jones Industrial Average starts this morning up 8.9% for 2011. The bear market rally in stocks that started in March of 2009 continues.

What He Said:

“When I look around today, I see falling stock prices…I see falling house prices…and prices for retail goods stores declining. The media has it all wrong blaming (worrying about) inflation. In my opinion, the single biggest threat to the U.S. economy and to the Fed in 2008 is deflation. You can bet the Fed will expand the money supply and drop interest rates aggressively, as deflation starts to rear its ugly head.” Michael Lombardi in PROFIT CONFIDENTIAL, December 17, 2007. Michael was one of the first to warn of deflation. By late 2008, world economies were embedded in their worst state of deflation since the Great Depression.