There are many more serious issues facing the economy in the coming
months that I don't think any amount of fiat dollars will help. Seven
million unemployed, rising foreclosures, a bankrupt FDIC, FHA under
water, residential"option arms" reset in 2010, 59% of prime mortgages
in some stage of forclosure, $3.5 trillion Commercial real estate is
collapsing, $12 trillion national debt and $50 trillion unfunded
liabilities (medicare, medicaid, Social Security). these problems are
not going away.If you want to know the direction of the S&P or the markets in general,
watch the direction of interest rates. When rates move higher it makes
business less profitable, prevents business investment, job creation
and generally slows the economy.
One of the best gages of an interest rate increase is the TLT (ETF,
Lehman 20 year Treasury Bond) and the LQD (coporate bond ETF). The TLT
below 90 and the LQD on a move below 103 are warning signs that rates
are moving up and should be headed. Rising interest are a leading
indicator so there is sufficient time to position for a sharp decline
(I would also want to see some type of technical confirmation).All asset classes are in competition for capital and money goes where
it gets the highest return. So, it can be said that dividend yields are
in competition against bond yields for investor's cash. When money
market yields are below the rate of inflation (like they are today)
money moves to metals. Because of the perceived inflation (money
printing) building in the economy the only protection is in
commodities.With the S&P index trading @ 29 times next years earnings and the
Wilshire 5000 @ 30 times and yielding less than 2%, there are no more
bargains in the stock market. A 10% unemployment and a housing market
that won't recover for another 6-10 years, the market has risen on the
wings of cost cutting and government bailouts. Stock market dividend
yields must move above treasury yields in order to attract investment
capital and the only way for that to happen is for the stock prices to
fall. If the yield on long dated treasuries rise, stock prices will
fall proportionately to increase their yield and attract capital from
the bond market.
iAutoblog the premier autoblogger software
