…for how long, and

…what are the implications for us as stock market investors?

Typically, the overall stock market mood tends to be dominated by either concept or valuation. This isn’t exactly the same as the contrast between growth and value investing styles, but it’s in the same general direction. In a concept-driven market, the key question is “How fast is Company X growing?”. In a valuation-driven market, the mantra is “How much am I paying for that growth?”. In the first case, faster is better; in the second, cheaper wins.

As I see it, Wall Street has been focusing so far this year on the dramatic drop in the dollar since the inauguration, making companies with costs in dollars but a significant percentage of revenues in other currencies big winners. On the other hand, companies with costs in foreign currencies but revenues in dollars have been big losers. My sense is that over the past few days sentiment has been shifting away from the first group toward the second, on the idea that they’ve been beaten down too much.

The rhythm of typical rising market is two steps forward, one step back–the step backward being a period when the market’s focus shifts to valuation and away from possible earnings expansion.

My biggest worry today?

It’s what I see as the administration approach to domestic money policy. This has two aspects:

–I think foreign holders of Treasuries have been reading the administration’s push for lower interest rates as an attempt to create inflation, in order to reduce the real value of outstanding government debt. Put a different way, they think Washington wants to repay with eighty-cent dollars

–Washington seems to want to emphasize short-term borrowings, as a way to minimize the negative effect of the interest on Treasuries on the budget balance. If so, this will magnify the immediate effect on overall government debt service of changes in the world’s perception of Washington’s creditworthiness. Great if the road is smooth, not so much if there are bumps and potholes.

It seems to me that if anything sends bulls away from US securities markets this will be it. I find it hard to figure how to quantify this risk, though. So I haven’t done much more than to have collected a samll number of value-ish names.