Maybe things have normalized. After all:
- Implied volatilities have fallen below long-run averages for equity indexes.
- The equity market is within spitting distance of a new high.
- The Fed is loosening (will they do more?)
- The discount window is largely vacant.
- Away from real estate, and real estate finance, things seem pretty chipper.
- The yield curve is normalizing.
- Inflation as measured by the government is low.
- Long term interest rates are low, for investment grade borrowers.
- Commercial paper problems are gone.
- LBO debt difficulties will be solved soon, through a combination of losses to the banks, and canceled deals.
Or maybe not:
- Inflation is rising globally.
- The dollar is weak.
- US inflation should start to rise as a result.
- Housing prices are weak and getting weaker. Default and delinquency statistics are rising.
- The CDO [Collateralized Debt Obligation] problems are still not solved.
- Defaults should begin to increase significantly on single-B and CCC-rated corporate debts in 2008.
- The TED [Treasury-Eurodollar] spread is still in a panic-type range.
I’m seeing more of my stocks get closer to the upper end of my rebalancing range. I will begin reducing exposure if the market run persists. I’m not crazy about the market here, but I am not making any aggressive moves.