>>"The risk in the current environment is that the market underestimates the magnitude of tightening necessary to slow the economy to a sustainable pace."
Hi Greg, you've hit the nail on the head---the crux of what is to happen to stocks hinges on what interest rates will do. I think that if the yield on the long bond goes decisively over the 7.3% level, I think the market is in trouble. If the rate gets to over 7.5%, I think the market is in serious trouble. Although, I posted to Kevin W that I don't view today's situation as analogous to 1987, I am not wedded to any position and I will change my view in a heart-beat, if the facts warrant it. But in today's environment, where the universal opinion seems to be that the economy is showing excessive strength, keep in mind that in November/December, the prevailing view was that the economy was lack-lustre.
At this point, while there may be downward revisions in earnings, by and large earnings are still looking good. If interest rates spike up, then earnings will be impacted both in terms of the carrying cost on debt as well as the the impact on earnings for the multi-nationals because a rise in rates is likely to lead to a stronger dollar and an adverse impact on those companies with international operations.
All of this is such a far cry from most of the postings on this thread that look to make a few dollars on quick in and out trades:) |
