Capital Shift

One thing I have been anticipating for a long time is the shift of capital away from equity to other forms of investments. The rally in the government bond market and the corresponding price increase for corporate bonds shows that investors are willing to take guaranteed gains in the form of interest payments rather than place risks on the potential for higher returns of stocks. Of course from an economic growth standpoint, bond financing is inferior as compared to raising money through selling equities. Long term, shifts in investments will hurt the US economy.

This is an excellent article on the subject:

Lauricella, Tom, Gongloff, Mark, 2010. A new world since lehman's fall. The Wall Street Journal, Sept. 13.

I like this quote from the article about investor memory:

"Whether it is because of the sheer magnitude of the financial crisis, a lost decade for stock investors or the significant level of government intervention in the economy and financial markets, investors who usually have short memories continue to see Lehman's shadow."

In addition, these two paragraphs provide more insight into the issue of government intervention as a form of economic distortion:

"Given huge government efforts to prop up the economy following the financial crisis, it is harder than usual for investors to get a read on the economic outlook, Ms. Browne says. That was evident in the collapse of U.S. home sales during June following the expiration of the homebuyers' tax credit.

Usually the markets move in anticipation of the economy's ups and downs, but with the tremendous influence of economic- and monetary-policy stimulus, 'people are unwilling to buy [stocks] ahead of the data," Ms. Browne says. Instead, "they're in a 'prove it to me' state.'"

For a number of reasons, I believe the US economy is paralyzed because of the depth of the financial crisis and the huge amount of government intervention.