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This Can't Be Good
The question remains to be answered as to whether all of this bullish behavior will reap anything but short term rewards. But those rewards have been spectacular. Numbers coming in about employment have done nothing to help stir interest in the fixed income markets. Interest rates look to remain low for the near term and if that happens, the smoke and mirrors equity market will continue its baseless rise.
While the economy seems to be verging on recovery, the jobs picture remains more gloomy than the politicians in particular, are painting it. For a complete recovery that includes a return to employment at the beginning of the Bush administration, the economy would need to replace 300,000 jobs per month and do it consistently month after month for more than two years. That calculation doesn't include all of the fresh new faces that enter the employment search each month, the uncounted minority, In spite of BLS revisions upward in September, that just won't happen.
There is also a growing concern that the interest rates are too low. With the stimulus due to run out of steam by the first of the year, the Fed governors have given themselves very little wiggle room should things suddenly turn bleak. That is a distinct possibility and one the equities bears are starting to trumpet.
If you believe that scenario, there are only a few safe havens to hide in when inflation starts to take hold. TIPS, Treasury Inflation Protected Securities still present the best alternative to what the naysayers are claiming will happen to the equities markets in the short term. Hiding in a REIT, a Real Estate Investment Trust could net the patient investor gains of well over 8% in the next year.
But both of these investments require something of the investor as well. Keep your eye off the bubble forming in the equity markets and be comfortable in historic long term returns not in wildly traded short term thrills.
This market is not deep enough nor is it liquid enough for anyone but the most risk tolerant. Add to that the possibility that the reward may not be there as it has in the past. All of this equals an environment fraught with problems.
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