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Danger Ahead: Easy Money Is No More

Stocks in this article: SPYTLTJNK^GSPC^DJI

On the other hand, the economic recovery could proceed apace despite sharp rises in interest rates. From this more optimistic scenario, two distinct possibilities arise.

The first possibility is that the inflation of an asset bubble proceeds as many investors deploy excess liquidity in the economy to bid up the prices of various risk assets such as stocks and real estate.

The second possibility is that the rise in interest rates will trigger a concomitant decline in the prices of income producing equities (i.e., dividend stocks) that are widely being deployed in portfolios as fixed-income substitutes and which are currently trading at valuations that are unprecedented.

Such a scenario implies either a decline in overall stock prices, or a massive and messy sector/style rotation (from dividend producing value stocks to non-dividend producing growth stocks) that leaves the prices of the major indices such as the S&P 500 (^GSPC) and Dow Jones Industrial Average (^DJI) relatively unchanged.


If you think you know your way around this prospective financial markets mine field, good luck to you. Simply beware of one thing: As far as prospective returns on equity investments are concerned, the "easy money" is no more.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

James Kostohryz has accumulated over twenty years of experience investing and trading virtually every asset class across the globe.

Kostohryz started his investment career as an analyst at one of the US's largest asset management firms covering sectors as diverse as emerging markets, banking, energy, construction, real estate, metals and mining. Later, Kostohryz became Chief Global Strategist and Head of International investments for a major investment bank. Kostohryz currently manages his own investment firm, specializing in proprietary trading and institutional portfolio management advisory.

Born in Mexico, Kostohryz grew up between south Texas and Colombia, has lived and worked in nine different countries, and has traveled extensively in more than 50 others. Kostohryz actively pursues various intellectual interests and is currently writing a book on the impact of culture on economic development. He is a former NCAA and world-class decathlete and has stayed active in a variety of sports.

Kostohryz graduated with honors from both Stanford University and Harvard Law School.

View Kostohryz's LinkedIn profile and connect with him here; follow him on Twitter here and Google+ here. When connecting, be sure to identify yourself as a reader from TheStreet.

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