Equity Market

8Ball, those are all very definite negatives to the economy and to the market. Until recently, I would have been in the "bear camp" with you. Now I'm not so sure.

The thing is that these are now all "known knowns" (or at least "known unknowns") and yet the market doesn't want to break down. Either the market is not fully aware of all of these issues (unlikely) and implications (possibly), or it is looking through them (also possibly) - or does the market have to keep running just to stand still?

The Fed printing presses are working overtime and this can only lead to dollar weakness and high inflation. Despite the government/fed/treasury protestations to the contrary, I think that this is actually one of their main goals - why else do they exclude food and housing from the core inflation? If you want a more conspiratorial thought, how is the US going to sort out the healthcare and retirement timebombs? Inflate your way out of it!

In my opinion, the worst place to be in right now is US bonds. Buying something that offers low single-digit return when real inflation is high single-digit means you are being penalised for saving.

If you think this is fanciful pie in the sky thinking, have a look at Zimbabwe. This first chart is the market cap of the Zimbabwean exchange in local currency (ZWD). http://img132.imageshack.us/img132/4051/zimzwdgz3.gif The second chart is the same in US Dollars. http://img132.imageshack.us/img132/7271/zimusdzc1.gif

27 years ago (just before most of you were born), you got 1 Zimbabwe dollars for every US dollar. If you were a middle class Zimbabwean, you could travel the world and still feel middle class. Have you noticed how Americans travelling to Europe complain a lot more about prices these days?

I don't this happens as quickly or as dramatically while the US dollar remains the world's default currency but for how long will that be?

So, in summary, I am positive on the US stock market, negative on the US, and would have my money elsewhere.