December 26, 2013

Addicted to low rates

I continue to be of the view that the addiction to low interest rates runs deep with consumers, corporations in the private sector and our government in terms of financing the U.S. deficit, and it will weigh on optimistic growth expectations and the consensus view that stocks will rise further.

The domestic economy is heavily doped up by abnormally low interest rates and monetary accommodation.

Because of our inept and divided leaders in Washington, D.C., the shoulders of monetary policy (the Fed) have been needed to support growth in our domestic economy. With that monetary support moderating coupled with the lack of fiscal responsibility and the inability of Democrats and Republicans to come together, more uncertainty than less certainty of policy lies ahead. This should be valuation-deflating.

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