Market Observation 01 14 10

The US financial system and the market have come back from the brink of disaster. While fear has resided significantly, serious problems remain. Housing has yet to recover, commercial property is in trouble, consumer spending is continuing to contract and the economy is not creating new jobs.


Don't let the dismal economic picture stop you from recognizing that the stock and corporate bond markets are in bull market uptrends. That is just the result of the massive infusion of cheap government money.

Regardless of whether you agree with the current monetary and fiscal policies, easy money always makes its way into the financial markets before it really has any effect on the economy.

In the long term we need to have jobs come back, ironically however, the current joblessness my actually be a plus for the stock and bond market. Why? A jobless recovery will keep a lid on both interest rates and inflation. Rising interest rates and inflation are negative for the market. Stable interest rates and low inflation are a big positive for the market.

Because of the unique circumstances of this cycle, there is legitimate concern about just how much the massive infusion of liquidity will actually stimulate economic growth, but there should be no question about its impact on the stock and bond markets.