The beginning of the next phase.

With the massive amount of liquidity in the world financial system, or as Dr. John Rutledge calls it "a tsunami of money", we should all be frightened of the prospect of the end of the contraction in aggregate demand for assets. Any increase at all in business activity will trigger an acceleration in the demand for assets and a decrease in the willingness to hold cash balances. The immediate and obvious effect will be a dizzying rise in interest rates. The only exception may be in the tax exempt bond market as the prospect of actually earning taxable business income touches off a rush to minimize taxable investment income sources.

All this implies a sectoral shift in stock preferences: higher expected equity costs of capital, driven by higher inflation fears will smother prices among high return, high growth stocks. Those commodity companies, oil, copper, and others, that have generally low returns on capital will outperform - their revenue increases will come from both volume and price and more than offset increases in equity costs of capital.

Now this change will produce lots more volatility but may only last a few quarters. However, the folks talking about "green shoots" may have much more to worry about than farming.