Monday, February 21, 2011
In just a few weeks less than two years, the market cap of global equity markets has risen 113%—more than double what it was at the depression-level depths of early March '09.
Are stocks risky? You bet. Is the market always right and efficient? No way. Do markets panic at times? They sure did two years ago. Are stocks still a good investment for the long haul? Apparently, yes, if you have the stamina and fortitude to ride out the occasional bouts of panic. Does the market still have significant upside potential? I think so, particularly since risk-free investments are earning close to zero, corporate profits are at record highs, and US fiscal policy could be headed—finally—in a positive direction.
Is the coast clear? No way. US monetary policy is still sailing in uncharted waters and it wouldn't be hard for inflation to turn up in a big way. The dollar is as weak as it's ever been, and the US economy is facing severe headwinds in the form of a huge fiscal deficit and a record post-war increase in government spending. Our president has just introduced a budget which almost totally ignores the impending fiscal trainwrecks of runaway transfer payments, social security and medicare.
Can we reasonably expect to get out of this mess? Yes. The US electorate is not stupid nor ill-informed nor inherently lazy. Information has never been so available, or of such high quality. The problems are becoming increasingly well understood. The public sector has grown too big for its britches, public sector unions need to be reined in, and we must revert to constitutional limits to the size and power of the federal government (aka, the Tea Party movement). It is still possible to restore the inherent dynamism of the US economy.
Posted by Scott Grannis at 9:36 PM