Wednesday, March 03, 2010

U.S. equity market alternatives

The U.S. equity market is looking attractive for many reasons. It is not a panacea for global economic decline, with that it will sink as well. It is all of a sudden a haven from so much that is going on in the world. Here's the opinion from this perspective---Europe's quasi-socialist cushion seems to have just delayed the blow from the '08-'09 financial debacle, and now the real effects are coming through---There are huge political issues confronting China as it faces a historic commercial real estate collapse--- India's dream story can't keep up with a ridiculously undermanned infrastructure--- Russia remains an ugly corrupt place--- and Brazil has portions of the country, and cities, that are beyond government control. Most of this is not new. It is all current, and added together this forces diversified global investors back to the U.S, dysfunctional government and all.

The U.S. equity markets are still down for the year. With the dollar gaining strength just because other countries troubles become clear and with the ECU in complete disarray, where would global investors turn. You can find some stocks that are overpriced in the U.S., pleased to own and be selling a few here, but for the most part it is still a modestly priced market, in fact cheap if anyone cares to discount free cash flow beyond three or four years. Diversification requires equities and the balance will tilt toward the U.S. in the next year. That tilt will be limited if the Obama administration follows through on hostile shareholder actions and it would be radically accelerated if the government indicated a business friendly environment.

This is not just stock price talk, but business environment, jobs, and investment talk, and one could wonder whether President Obama has any notion whatsoever of the link between the two.


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