Wednesday, March 6, 2013

Economy Down, Market Up

I've another thought on why the Stock Market is up to record highs while the economy continues to linger in the doldrums. Perhaps it is as simple as people with money to invest finding it the only place where they can earn a return on their money.

Yes, stock prices are going up, but more fundamentally, some stocks continue to pay substantial dividends. For example, ConocoPhillips pays roughly 5% per annum.

Meanwhile bonds are paying interest so low that holding them is a money losing proposition, after you calculate inflation and taxes. CDs aren't paying anything, ditto money market accounts, ditto bank savings accounts.

Real property values have been shaky over the past few years. Not wanting to put money under the mattress, people buy stocks and cause the market to go up. This is likely to continue until people lose confidence, sell,  and cause the market to go down. Then their $$ goes back "under the mattress."