So... how high can the stock market go?
As the markets flirt with record highs, one can't help but wonder.... how high CAN the stock market go?
If you are old enough to have experienced the most recent economic downturn and challenges, but young enough to have not experienced the 1940's, then you probably have a similar level of uncertainty when it comes to the current stock market. Many economic indicators point towards a continued recovery albeit slower than preferred. Recent job reports show that the number of jobs is increasing, and the unemployment rate is slowly beginning to decrease, which points towards a promising future economy. There are, however, several indications that we are not out of the woods just yet. The Federal Reserve continues to influence our currency through quantitative easing, the number of unemployed that have stopped looking as well as the number of graduates that aren't even counted in the unemployment rate remains high, and the national debt continues to increase with extreme deficit spending. All of which are influences, let alone as a combination. So, which way does the wind blow? Who is going to predict the next trend?
My prediction is that we will see 2-4 years of slow recovery and the national deficits will decrease to the $600 billion mark, the Federal Reserve as indicated will begin to raise interest rates sometime in 2014 and we will then begin to see rising inflation at which time we will see another economic slowdown, possibly even another recession. If the situation is compounded by additional credit rating decreases, and a drop out of demand for U.S. treasuries and bonds, the impact may be incremental or catastrophic.
The real question isn't are we headed for a recovery, but how long will it last?
Some believe that the U.S. Government plays a larger role in the total U.S. economy. Although it is true that as a percentage of GDP the government is larger than ever, the biggest impact it has is in consumer confidence. As we have seen through it's management of U.S. currency, fiscal accounting practices of war spending, encouragement of lenient lending policies, poor negotiation of debt reduction legislation, and generally poor communication of a vision for the country, the U.S. government does not have a track record of cultivating confidence to it's businesses, investors, citizens and consumers. If you believe that past performance predicts future performance, then you would be accurate in the assumption that the U.S. government will likely meet with continued impasse and ongoing fiscal irresponsibility that will lead to a severe correction, not on a stock market basis, but on a management basis. A person can stand with their backs to the waves and for many waves remain standing, but to think that the ocean won't teach a lesson, is to be truly naive.
