If I were to awaken today from a five year coma, being the chap I be, I’d first ask about my family, then the market, then the economy…

Here’s how the market/economy Q and A (an analyst) would go:

Q: What’s the S&P’s current multiple? (the aggregate price/earnings ratio for the companies making up the S&P 500)…
A: Somewhere between 12 and 14, based on estimates… Probably will come in around 13…

Q: That’s pretty cheap… How’s the earnings outlook?
A: Two-thirds of companies have been meeting or beating expectations… Forward guidance has been decent, depending on the industry… Next year’s multiple looks to be around 13 as well…

Q: That’s great! What about profit margins?
A: Higher than they’ve been since the ’50’s…

Q: That’s incredible!What about balance sheets?
A: Huge cash positions, and any debt is at extremely low interest rates…

Q: Unbelievable!! What about overall interest rates and money supply?
A: Interest rates are at all-time lows and money supply is off the charts…

Q: Wow!The market looks better than I’ve ever seen it!

Q: Now tell me about the economy…
A: Well…. we just went through the worst recession since the Great Depression – and we’re just limping along at this point… Unemployment remains at 9%… The Administration passed a trillion dollar stimulus package that went largely to the states, which they used largely to fund their transfer payments (welfare, etc.)… We now have a national healthcare plan that has done nothing thus far but mired the industry in uncertainty… The Fed has embarked on a QE bonanza like you wouldn’t believe… Its balance sheet is bulging with $2.8 trillion in treasuries and mortgage backed paper… Our nation’s budget for 2011 is something like $3.7 trillion and our revenue is $2.2… The debt ceiling was recently raised to accommodate the borrowing for another year or so… The Administration has been on a class warfare campaign as ridiculous as any we’ve ever seen… The financial industry has been saddled with some 400 new regs… Small banks are struggling mightily to keep up… I could go on and on but suffice it to say that all this explains why companies are hanging onto all that cash… Oh and don’t even ask me about Europe…

Q: Oh my God! That’s sickening!
A: Yep…

Q: That explains why stocks aren’t going through the roof…
A: Yep…

Q: I imagine corporate earnings are coming largely from the business they’re doing in emerging markets, which I suspect are doing much better than us…
A: Yep…

Q: Hmm… Sounds like corporate America has its act together… Guess I’ll be owning stocks… And without all this crap going on, I wouldn’t be getting in this cheap… I like it!
A: I agree… But you should expect a great deal of volatility going forward…

Q: I know, but I love that… When I rebalance twice a year, I’ll be selling when the market’s rising and buying when it’s falling…
A: Yep…