Is Now a Good Time To Invest in the Stock Market?

So far, this is the best October in over 30 years! Does this mean that we have turned the corner? The markets reacted to good news in Europe where they seem to have come to an agreement as to how to solve the financial mess they find themselves in. The only problem is that essentially what they seem to be doing is discounting old debt (bond holders being paid off at 50% or so) and replacing it with new debt somewhere in the area of 1 trillion euros (about 1.4 trillion dollars). Who are they going to for the majority of this funding? China of course. They are the only ones at present with enough cash to handle this type of loan… but will they agree to do it… that is still up on the air.

Meanwhile back in the US, housing is showing a few weak signs of life, retailers are optimistic about the up-coming holidays, oil prices remain below $100/barrel, and corporate earnings generally are beating expectations. The middle east is relatively calm for now and with Muammar Qaddafi out of the way the Libyan revolution is past one more hurdle. The US is withdrawing from Iraq which will save billions of dollars. The Republicans have a large and diverse field of candidates making for interesting debates, and President Obama is working hard to get congressional approval of his jobs bill.

We certainly have seen worse times in the recent past, but I’m not sure that it is time to celebrate. First we need to see a definitive working plan in place to solve the European debt crisis. We need to see a return to increasing real estate prices and a reduction in the massive inventory of unsold houses in the US. We need to see a joint bi-partisan effort in congress to reduce the deficit and get the national debt under control. But perhaps most of all we need to figure out how to create more jobs domestically. One of the reasons that the largest US corporations are doing well is that they have been sending jobs overseas as a means of cost reduction. This will continue as long as it is economically advantageous to do so. Our congress is well aware of these problems, but to date has been more concerned with politics, re-election, and party affiliations than with solving the issues at hand.

In short, while the markets seem to be celebrating, until the major issues listed above are addressed by our congress and some real resolutions are in sight, resulting in a return to confidence, I think that we will continue to see a great deal of volatility in the markets. While I am generally optimistic based on the current news cycle, I think it prudent to keep the seat belt strapped on tight for a while longer as it will probably continue to be a bumpy ride.