After bailing out the banks, governments have kept interest rates low, and as a result, profits have soared. News about the 1st quarter was slightly disappointing today, but 3% growth ain’t bad. Two big factors this week: geopolitical fears coming from the Pacific Rim, and foreign (European) debt.

Many investors worry that if European governments all start closing their fists at once, another recession looms. But the flip side is that if countries like Greece and Spain don’t exercise fiscal restraint, then default and the banks holding that debt will flounder.

The rate of interbank lending (LIBOR) has soared recently. But as banks become more concerned about their lending rates, they may become more reticent to lend, which could mean a freeze in the markets similar to that of 2008.

In general, the ease of recovery has been part of the reason for the volatility of the markets.  There will be a time when interest rates return to normal levels, and fiscal policy tightens. This return to normalcy, for many investors, is scary. How it will be effected is still unknown.

And what about deflation? Price to earnings ratios are still higher than they should be, trading at 20 times what earnings actually are.

While profits and interest rates remain good signs, political trouble and financial regulation worries bears. Guess we’ll have to wait and see.