Maserati,
Thanks. I read a summary of the paper earlier in the day.
Ultimately, the equity markets will be determined by valuation. If you believe some analysts the market is at fair value and stocks represent a better value than bonds. The evaluation metric these analyst use is the Fed Model or Dividend Discount Model, which uses a comparison of the Ten Year Treasury to the dividend of the S&P 500. The more narrow the difference the more attractive stocks look. However, since 1985 interest rates have been in decline and tracking a general rise in the market. Therefore, if interest rates are more likely to rise from here the predictability of this modelmis limited.
Many more academics point to Tobin's Q, Schiller Cape 10, and the Buffett Indicator as more reliable models. John Hussman uses another model, memory is a bit foggy here, but you can go to his recent weekly commentary, that shows even better predictability when back tested. Using any individually or collectively shows the market at extremes that have been hit only a handfull of times in a hundred years of history.
As I have mentioned before I am of the belief that we are on the precipice of something historic, and not of the good variety. There are far too many market factors that point in a downward direction.
Take a serious hint from the St. Louis Fed report you posted. Also, Google "Quick Silver Markets" from the Treasury's Office of Financial Research. Even the government agencies in the best poition to advise are telling you: BEWARE!
Igy