I believe the worst possible outcome for the equity market is stagflation and there is increasing evidence that is where we are heading. The best thing the bulls have going for them is that yields are so low everywhere else that in comparison the equity markets look much better. But how would those 2.5% dividend yields look in a world with inflation and little growth?
The CRB RIND index hit a new all time high yesterday, all the while we are seeing competitive currency devaluation. QEII would only exacerbate the situation. I would point out that the first time the Federal Reserve engaged in quantitative easing the dollar was strong. That is not currently the case and the results could differ this time around. To those that point to the wisdom of the bond markets I ask what was the bond market saying in 1982? Could it have been more wrong?