As I stated in a previous blog entry, I did not subscribe to the "green shoots" theory. I believe that the general economy is in for a long, slow, slog through deleveraging (debt unwinding).
So what about the stock market? It has fallen quite a bit. Is it now fairly priced? Based upon long term averages of being priced at a P/E of 15 (or 16.3 for the P/E10), yes. The stock market has a P/E10 of around 16.7, and the long term average is 16.3. [NOTE: the one year TTM P/E is way out of line at 1900, and as the TTM goes negative, the P/E shoots up beyond infinity and goes negative. Such a figure becomes useless, as it exaggerates the temporary losses and ignores all else.] So the market may be fairly valued.
For more details on the P/E situation , see this dshort.com writeup
But P/E isn't everything. Future prospects matter more than current performance. Have you ever played around with a discounted cash flow model? If you have, you should have noticed how even slight assumptions about changes in the distant future have massive effects on the today's value of the asset. For these reasons, I find these models much more deceptive than useful. Still, if you have a general idea that earnings are falling, you can come to the general conclusion that prices will fall as well, maintaining this P/E10 of 16.3.
But there is another way of looking at it that says that the market is undervalued. Turn the P/E over and you get the earnings yield, which is about 6%. In a low interest rate environment, 6% starts to look pretty good.
If the money supply inflation breaks free and price inflation ensues, as it must eventually do, interest rates will skyrocket from these artificial lows. However, the market should climb as well, at a rate a bit less than the inflation rate (since too much inflation doesn't do good things for people trying to do business). So this is not a counterargument to the idea that 6% looks like a well valued market.
If you are a causal occasional investor, getting back into the market via an index fund is not an unreasonable thing do to at this point. But if you want to play the trend a bit (and that type of play usually pays) I would wait for the next down-leg. I expect another down-leg, because (1) we just had a significant 4-month uptrend, and (2) markets don't come back to average levels and stop there, they overshoot.
If you decide to stay out of stocks in general (and I recommend that for the time being), where should you park your funds? Personally I would hold gold (perhaps via GLD) which manages to do well in both deflationary and inflationary environments, and during times of trouble, a few commodity producing stocks as a defensive hedge agaist any sudden inflationary flare-ups (HAP is a very good balanced fund for that, set up by Jim Rogers), dividend producing companies like utilities (DPL and EIX), and if you hold cash, distribute it (perhaps via hedging on forex markets) between the majors (USD, EUR, JPY, GBP, CHF, CAD, AUD) and overweight your home currency. Of course, it is a market of stocks, not a stock market, and if you know a particular company that is exceptionally positioned, that is probably your best bet. I still think CVE:NGP is an exceptional play, as well as RDS_A (mainly because of the dividend).