[dropcap]A:[/dropcap] There are strong arguments for a rally in the stock market. For example, there is nearly two trillion of cash sitting in corporate checkbooks, and banks have nearly 1.5 trillion in cash over and above their reserve requirements. If those two mountains of money move into the economy it could spark a very healthy rally.
On the other hand, there are several landmines hidden in the road to a rally. We are just now finding out (little by little) how expensive the new mandated healthcare plan will be. There is a possibility in Europe, that because of years of mindless deficit spending, the Euro could implode as a currency. The fallout from such an event would be unprecedented and unpredictable – but not insignificant. Iran has vowed to eliminate Israel who is threatening to pre-empt any such attempt. China’s “miracle economy” has slowed significantly and North Korea is now shooting off long-range rockets.
On the home-front, our government is spending trillions more than we have in revenue and has set a long-term spending course that will insure a continuation of this fiscal folly. In fact, it is much worse than the media and politicians will admit. If interest rates were allowed to be anywhere near “normal” or historic rates, the actual annual deficit would be more than doubled because the government would have to also borrow the interest charge as well.
While there are strong reasons to assume the stock market may soon have a big rally, there are also strong reasons that may argue for trouble instead. Assessing your risk tolerance and financial priorities is a conversation you and your financial advisor should discuss at length – before you invest.
BY: Bill and Cindi Porter
Aileron Investment Advisors
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