The stock market has attained a level of price with respect to 2010 earnings that is fairly close to past market levels. So is the profit opportunity already realized?
I don't think so because if you are looking for a place for money that needs a return, try to build a shorter term ladder these days. Available interest rates on the one year tranche are less than 1% if you are credit risk averse.
Money is flowing into the financial system generally as well. Try to refinance residential real estate. Is it virtually impossible as some reports have made is seem? No credit standards are just sensible like they used to be and loans are being readily made. What is different is rates and the ability to lever up. 4.25% on a 15 year mortgage is cheap and available. Is there a reinvestment opportunity for some in this setup? Yes very much so and it is going on now.
With realistic loan underwriting and cheap money, we have a potential for a sustainable healing to take place in the economy even as the direction of the business cycle points up. Given the improving trend and flows of cheap capital, I think it is hard to see how one can be bearish despite the bad news and debt issues. Most importantly the low interest return on fixed income is encouraging to flow towards assets with much higher potential returns and risks.
While this has caused stocks to rebound, and some in particular still look very good, it has most of all resulted in investment money flowing towards commodities.
Some commodities like oil are strong despite having no current shortage whatsoever, yet a strong case can be made there will be. Gold on the other hand, is migrating to a role it used have. Arguably gold is now primarily a store of value or in other words a currency in of itself. What price is that worth? You don't know? How can anyone?
It has been proposed that gold will become a currency of exchange in an electronic medium. If you have used Pay Pal you see the beginning of the idea. Instead of dollars in a Pay Pal account, what if there were gold credits? What if I sold you a laptop for 1/2 an ounce of gold on your gold Pay Pal account. Would that be too far out to imagine? No not all.
So cheap interest rates are the gas and where it all goes isn't within the control of those who apply the gas. Home prices or financial asset prices will benefit collaterally, but the charts show gold at new all time highs almost everyday now. The gas is flowing and where it goes seems to be the most salient investment news of all.
