Uneasy Markets...Is There Reason to Worry?

Sometimes when I haven't written a post in awhile its because I am paying very close attention to what's going on in the US markets as well the rest of the world. My general thoughts are people are 'cautiously optimistic' but still a little schizophrenic.  They haven't forgot about how bad a few years ago felt for them and the people they care about. My main street barometer considers things like: 1) Are people shopping? 2) Do I see the bars/clubs/restaurants crowded? 3) Are people talking about their bills or their vacation?

My unscientific survey of my friends and I show that we are going out to more movies, drinking more beer, and thinking about that next trip to Mexico or Las Vegas.  This is positive because it means that unconsciously we might feel that things aren't too bad out there.  However, our alter egos remind us to constantly talk about deals! Our conversations usually start with, "Where can we get in for free?" or "Are there deals or specials today?"  This translates into into my views on the stock market.  I feel pretty good about things and wanna buy more stocks but I want a deal! I think we all share the same feelings of wanting to be invested because we see the stock market going up but I caution you to "WAIT FOR YOUR DEAL!"

I was reading and wanted to share some a question and answer from a Wall Street pro that summed up my feeling on stocks and why I am cautious. Here is a snippet that was posted by the Wall Street Journal:

WSJ Link

Q: Where do you worry you might be wrong?

A: Well, our biggest concern is not so much about being wrong over the next five to 10 years, it's being wrong next year. We believe very strongly in value. We think that value wins in the long run. The problem is it can lose for an inconvenient amount of time along the way. And I would say our biggest concern about why the U.S. might win this year is because of what's going on with government policies around the world.

We believe that the U.S. stock market is overvalued because profits are unsustainably high. But the biggest reason why profits are unsustainably high is because we're running giant budget deficits, which has allowed corporations to cut their labor costs without forcing the workers to cut their consumption.

The government has stepped in and cut taxes and given transfer payments to make up for that lost income. That's happened around the world because you can see budget deficits are quite large in a lot of places. But if you compared the U.S. to, say, Europe, in Europe they're actually serious about austerity. They're shrinking those budget deficits and that means this year is more likely to be a bad year for profits in Europe than it is in the U.S.

And so one of our concerns is [that] economically this year [the U.S.] may look pretty good and profits—while they're unlikely to grow by much—may not be shrinking. And in other parts of the world they may be shrinking.

So I am a bit nervous that the U.S. might have a pretty good year, not really because it "deserves" to in the long run, but because it's going to look like a … bastion of decent economic times in a world where we think there is a recession in Europe and the emerging world may be slowing down significantly. So we may look pretty good by comparison. It won't matter in the long run, but in the short-run it may leave us underperforming because the U.S. wins.