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We have been trained to associate high interest rates with a positive return (despite the fact that they frequently have been lower than the rate of inflation). In today's near zero interest rate environment, the emotional pain caused by demonstrably paltry interest rates (though possibly no more negative than they have effectively been in the past) is forcing us to invest in equities (as the "only game left in town").

Equities are risky only in as far as people stop buying them (with the premise that the reason equities rise is because they are being bought more than sold).

So the question right now is not whether they are over valued (I personally believe that there are few bargains around right now and growth is not stellar), but rather what factors are pushing people into them. A few of these:

1) Nowhere else to make a buck
2) Dropping Yen pushing a Japanese carry trade
3) Shakey Euro encouraging non-European shares
4) Retail investors beginning to believe they will be left behind by rising equity prices (and having the pain of 2008/9 becoming a more distant memory).
5) The Fed pumping money into the system by thee bale

OK, so what could go wrong? Well, the opposite (or slowing down) of any of the above mentioned factors (as well as a number of unexpected geopolitical or macroeconomic surprises).

So the music plays on, but the higher the market goes from here, the more important it will be to know where there is an empty seat and to be willing to sit down if the music stops.

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