patrick.net

They have a very favorable FED at this time, probably the most favorable ever. I think there is a sense on Wall Street that Bernanke and company will do everything possible to inflate asset prices including stock prices. They are right and QE3 will be coming if there is any serious bear drop in the market. It will be to the benefit of Wall Street stocks, but at the detriment of Main Street.

The reason stocks can go up is that despite the tough situation in the USA and other places, on average the world's economies are growing. There are billions of people who now can see what Western consumers have, and they all want it too. I lived in a third world country for a bit and return to visit ever year at least over the last 20 years. They are consuming and will never stop. They want Apple iPads, iPhones, iPods. They consume Nestle, Bayer,Pfizer, Merck, Coca Cola, their governments use Caterpillar, farmers use Monsanto, Deere, etc. Nothing will stop this trend until ALL people on earth have all of the junk, health care, entertainment, energy and comfort they can possibly afford. Actually, they want more than they can afford, we saw that here in the USA.
I was amazed to see that the poorer people are, they MORE brand conscious they are.
The other reasons today are that you can buy a stock that pays dividends that are higher than bonds, and bank accounts of course pay nothing.
Why not buy Verizon and Exxon and make double what a bond fund pays you AND have a stock in a growing business? Sounds reasonable to me.
The trick of course is which companies will succeed and which will fail, hopefully you can find a mutual fund that chooses its stocks well.

Ritholtz has an excellent column:

http://www.washingtonpost.com/business/wall-street-analysts-and-economists-have-this-recession-recovery-wrong/2011/07/14/gIQAVRTIGI_story.html

that nails my thesis pretty well.

Read the "Painted into a corner" section of Page 2. I'm not 0.001% as plugged in as he, but I suspect he is not wrong here.

I read an article somewhere -- can't remember where or I'd post the URL -- that basically said the reason stocks had risen is that companies where purchasing back their own stock, but using investor money instead of their executives. I.e., the executives (or other insiders) were not buying the company stock, but they were using company money to buy back stock.

The analysis was that the insiders did not think the stock was a good buy, but they wanted to boost stock prices so their executives could sell at a higher profit. And since companies have been hording cash, and there is nowhere else to invest that cash, they could sell the idea of a company stock buyback.

clambo nailed it. Indeed, an awful lot of US companies are now selling more product overseas than in the US. The result is less reliance on US consumers. Hence their continued success.