Maybe, just maybe we are emerging from the “lost decade” in which equity markets have struggled as investors have held onto their cash. This long period of stagnation benefitted bondholders as the Federal Reserve reduced interest rates to practically zero in the attempt to get buyers back into real estate with low interest loans.
Dysfunction in our political system created so much confusion and indecision regarding taxes, regulations, and health care that businesses virtually retrenched and stockpiled unprecedented amounts of cash. Costs have been cut and technology applied allowing revenues and earnings to continue to grow with less staff. Investments into new factories and equipment have been low for quite a long time.
Many investors have given up on stocks fearing another severe market selloff. They are content to sit on the sidelines in banks or money markets earning less than ½% on their cash in exchange for safety. These same savers have recently started reaching for a bit more return by locking cash up into longer maturity CD’s and Treasury bonds.
Could it be time that the never ending media- orchestrated drama is in fact getting recognized for what it really is and that focus is returning to the actual fundamentals of the companies in the investing universe? Most recently the stock market may be telling us just that. A long, consistent run-up in equity prices has confounded the naysayers who continue to forecast Armageddon in stock prices.
This quarter to date, 98% of the reporting companies have matched or beaten earnings estimates. The shift of monies from bonds into equities has begun this past month reversing a multi-year trend. The equity market returns of approximately 15% for 2012 are prompting savers to take a harder look at once again investing into equities to increase their returns. What if even a small portion of the huge cash reserves begin to do the same?
It has been proven time and again that negative budgets and unemployment can only be corrected by growing our economy. Our current situation is no different. Private investments into manufacturing, energy and its transmission, technology and new business will get us growing as a country again. In particular, the new processes that can help make us energy independent and the amazing technologies in the works, if funded, will enhance the standard of living for all citizens.
Maybe, just maybe, our focus is returning.
Dare to be optimistic.