The politicians and their followers are using gains in the stock market as evidence that the economy is recovering. While I'd like to believe it, I can't help being a bit nervous about putting more money into equity investments at this time.
The reason for the increase in the market value of stocks is because of the absurdly low interest rates on fixed income obligations like C.D.s, money market funds and short term treasury bills.
When interest rates on short term debt obligations are near zero, what choice does an investor have other than to invest in the stock market? Despite a weak economy and relatively high unemployment, the majority of people are still working and are trying to save more money. Ongoing contributions to various kinds of tax deferred retirement plans have to be invested somewhere. The real estate market is still dicey and fixed income investments offer near zero returns. So the money is going into the market.
I can't think of any way to accurately predict when or if the Fed will stop their "quantitative easing" (money creation) and let interest rates return to whatever the market dictates for various kinds of debt obligations. But until that happens, it's a little bit like living under the "Teeterin rock" in the Li'l Abner cartoons. Once interest rates return to normal, a lot of money will move out of the market.
At least that's the way it seems to me.
Vern
www.vernonjacobs.com
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