First off the debt and the saturation point is no where near it is in the EU as a percentage of GDP. Where that tipping point is? Who knows. The P/E ratio of all indices is not at a high point. In fact it is mid-range. I know the financials have been given the biggest reward but if you look at their P/E ratios it is low. that's because the street will not give them rich valuations. The trillions that you say went into the economy in fact did not. That's why we still see deflation as a concern. In fact the money the fed poured into the banks was/is deflationary since they have decided to keep the money and earn free interest via the fed themselves. it is only now that the yield spread has widened enough to make banks want to lend again. Banks became very conservative 4 years ago. The risk to lend was too great since the return on their investment was in question. now that rates are stable and bond spreads widened you should see the result of that very soon.
Wall Street has rewarded the financials for the last few months because they see what the widening of the yield will do. Banks should actually do better than most other segments even if we hit another bear trend. granted if it becomes another crisis than all bets are off. I just don't see that happening yet.
This argument is the same we had last year and all the way back to 4 years ago. Everyone assumed the dollar would be destroyed and inflation would result. The last 4 years was the best, absolutely best scenario you could have hoped for. I don't believe the Fed wanted the money that shored up the banks to go into the open market. that would have resulted in an inflationary bust. Bernanke devised a very smart idea that has worked. Stabilize banks with free money that was only used for themselves by getting free interest on that loan. Prevented bond yields from rising by capping the demand. In affect they bought time. I personally believe there will never be enough time for the debt to work its way out of the system. I think however that Bernanke is doing everything in his power to hold the dam from breaking. Can he succeed? Who knows. I am a pessimist at heart so I would give the odds 1 in 10. 4 years ago I would have given the odds 1 in 100.
I believe the markets will collapse due to real inflationary pressure from real GDP growth. I don't see this developing for a couple of years yet. Just one man's theory.
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