What would happen ‘if’ a cabal of central bankers secretly agreed at G20 / Shanghai, to debase both currencies and keep rates low, so as to lift (or sustain) financial assets near or at high levels?  That’s a concern the markets face in a two-way dilemma.

One aspect is of course the realization that slow growth alone (not so much the idea that inflation itself is elevated by higher rates; a topic Bernanke brought up just days ago), will not fundamentally support persistent S&P multiples staying at relatively high (present) levels. Not to be confused with individual PE’s on stocks, where a high PE exists normally twice. Once when too expensive, as well as often near recession or earnings troughs, when there’s low profits. So at that point, one also sees a high PE, but concurrent with a low share price. 

The other aspect is the central bank idea of again forcing investors into higher-risk financial assets by intentionally preventing any substantive return on assets with risk aversion. The result being the possibility of creating greater risk in US markets than comparable industrial shares in Europe. That’s because multiples never achieved the levels associated with high growth on the continent (normally they don’t). Whereas here they remain at PE’s seen in spirited growth periods rather than the sluggish ones of the era we’re in, regardless of slight up or down nuances.

Given currency differences, that creates a little more attraction abroad, but fails to address a question as to ‘why’ the ECB would want to agree to a strategy that softens the Dollar and makes it harder to grow EU exports. Thus I’m suspicious of the motivation, or even of there being ‘such a deal’. If that’s the case, then the movement of the Dollar recently; the slight stabilization of the banking issues for German and other bonds, and of course the moderate Oil improvement, return as determinants of equity levels here (indirectly). So too the ‘curtailing’ of many of the buybacks, which has provided some underlying support of late. Now we’re seeing a cessation of that ‘assist’ to upward action, but temporarily, as those big companies doing buybacks now mostly enter blackouts that prohibit additional share purchases as they go into Quarterly earnings, as are looming just ahead.