Market Outlook August 29, 2011

Bond rates have moved up slightly. It would be hard to imagine them falling much lower. Fiscal and monetary policy are easy, in an attempt to spur economic expansion. It is difficult to tell whether or not that will be successful, but few people seem to have ideas about other ways to overcome this economic weak patch. If the economy does slow or shrink, it would be most likely only a mid-cycle slowdown.

Having said that, it still doesn’t appear to be time to own stocks. Stocks continue to have negative momentum, especially compared to bonds. And even though stocks had a positive week, gold (IGT) has far better momentum. It can’t go up forever and it may not be time to buy now; I don’t know because I can’t call the top. But that’s where my money continues to be, since I don’t expect it to drop as quickly as other potential investments could.

The stock market climbed 2.67% last week. Even so, my fair value calculation also climbed and the market continues to appear undervalued. It looks like earnings appear to be constructive, especially if one is willing to ignore RBC’s one-time expense. It would be difficult for companies not to achieve the 2.8% earnings growth over the 12 months that is being discounted by the current market price.