In one of my recent columns, I noted that investment analysis has gotten far trickier over the last few years.

We have entered a period of “administrative markets,” in which equity returns are affected as much by government policies as they are by economic growth and corporate profits.

In the last few years, we’ve seen large-scale bailouts; trillions in fiscal stimulus; massive quantitative easing; nearly seven years of zero short-term rates; heavy-handed regulation; and sharply higher taxes on income, dividends, and capital gains.

Our corporate tax rate is the highest in the developed world, driving even iconic American companies like Burger King to move their headquarters to Canada.

These policies distort markets… and lately equity investors have been paying the price.

A Shot Across the Bow

The S&P 500 recently plunged more than 10% in four days.

Don’t shrug this off. According to Bianco Research, this has happened only eight other times in the last 80 years.

Yes, the markets took a significant bounce. But I still view this as a shot across the bow, a warning.

Here’s what makes the smart money nervous right now…

In the past, when the economy (and the stock market) went into the tank, the traditional policy response was to stimulate the economy with lower interest rates and deficit spending.

But interest rates are already at zero. And under the Obama administration, the national debt has soared from $7.4 trillion to $18.4 trillion.

What’s next? Are we moving to negative interest rates (like Europe), creating a situation in which you have to pay to leave your money in the bank and even more stupendous deficits? That policy prescription didn’t work well for Greece.

Don’t put me in the gloom-and-doom camp. I’m not a pessimist. But I’m no Pollyanna either.

I consider myself a skeptical realist who looks at both the positives and negatives. Despite the many government policy missteps over the last decade, there are factors to appreciate as well.