There have been a few stories in the media over the weekend regarding how the slow rate of economic growth will force Central Bankers round the world to continue to provide easy monetary policy for the forseeable future.
Barrons interview with Michael Hartnett highlighted the positive aspects of slow growth and easy monetary policy this would allow low interest rates to remain for the foreseeable future and not represent a significant headwind to the stock market.
Reports from China’s Premier Wen Jiabao that China will maintain its current pro-growth monetary and economic policies for the near future.
While these policies will represent a tailwind for investors in the short term, they are fraught with hazard longer term. Keep in mind, this is how bubbles are formed. Its now common knowledge the easy policies in 2002/2003 contributed to the housing debacles of 08 and 09, the root lies in easy credit along with easy regulations.
My point is assuming a base earnings of $60 for the S&P 500 in 2009, if we achieve 1150 on the SPX the S&P 500 will be selling for 19 times 2009 earnings well best the historic median of 16 times earnings.
If we do enter the Double Dip Recession as Doug Kass fears, where will the Monetary stimulus come from to alleviate the dip?
Its all well and good that monetary policy remain easy, as I believe the economy is much too fragile without revenue growth and the political poison of increasing unemployment. But the easy pickens in the US markets will have been picked and risk high regardless of our monetary policies. This is in sharp contrast to years past but then we live in unusual circumstances these days.
Doing very little buying these days. Mostly just peeling off shares of China Green Ag and RINO Intl. as they have gone parabolic…..unlike the Red Sox which have gone anti-parabolic.
Keep cool out there.
Brad