An impressive pattern of prolonged, sustained uptrend in the 3 indices I follow : ( Dow, S&P, & Nasdaq) looks rather steady. I came upon an interesting partial explanation in an essay to-day by S& P's Vaughn Scully. He points out that state and many municipal governments have serious budget problems. The new Republican house wants to rewrite legislation that will allow them to go bankrupt. This would mean that municipal bonds could default.
I have a wealthy, elderly friend who has long been a fan of municipal bonds, because their interest is tax free It turns out that investors like my friend have pulled $15 billion out of municipal bonds this year in fear of their default. Everybody knows that while local governments are suffering, & social services are cut, corporate profits are strengthening rapidly. Productivity gains and falling need for manpower are at least a short term recipe for success. The investing money that is taken out of municipal bonds has to go somewhere, so at least some of it is heading into equities.
Interesting side note: tax breaks for business jets mean buyers can depreciate their price in ONE YEAR....it may be time to reconsider Bombardier and Embraer. I went downtown at noon to join a citizens' demonstration in solidarity with the Wisconsin public service workers, chanting "workers rights are human rights" and "save the people, not the banks", and so forth. It was most enlivening. I have hopes that the Lybians may soon throw out Muamar Qaddaffi.
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