The argument wages onward. Are we headed for further economic weakness or is the economy staging a long, slow, recovery? Neither camp is gaining much of a foothold. It would hold that a double dip recession would cause the stock market to fall sharply and improved marks on the job front and the economy as a whole would be helpful to stocks. To an extent, the answer to this debate is coincidental and would not determine the direction of the stock market.
Interest rates on riskless investments are close to zero. Money resting in this arena must certainly not be long for life. It is just a matter of time before this money will grow restless and be forced into higher returns. Much of these flows are evident in the bond market but data also shows a record holding of cash and money markets by American citizens and institutions. Figuratively, there is a lot of uninvewsted cash that has piled up.
By the time a recession hits, this restless money will be on the move in an attempt to get in on the ground floor of an eventual recovery. This migration of money is how bottoms are formed. Often times the best investment gains come in the intial stages of a recovery. In this economic climate starved for returns, you prepare for recovery moves in the stock market that willl be swift and somewhat short lived.
The key focal point is to determine where the best relative returns will emerge. Right now money seems to be flowing into Latin American stocks. This would be a region to focus investing efforts. It is also constructive to focus on micro stories such as stocks like Priceline and Netflix. These companies offer exemplary solutions in their marketplace.
Investors need growth investments but with cash paying zero, there are also income producing investments that can provide decent returns if carefully managed.On the income front, corporate bonds still offer rates above 3.5% for holding periods as short as three years. Corporate and sovereign debt of developing nations can also safely earn 6%.
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