The only time-proven market indicator that said stocks were undervalued for most of 2010 and 2011 is turning negative.

The Price/Earnings (P/E) ratio takes the current market price of a stock or index and divides it by the earnings of that stock or index.

Historically, P/E ratios between five and 10 are considered undervalued and indicate a good time to invest in stocks, with the thesis being that corporate earnings have bottomed. When the range is 10 to17, the companies/indices are considered at fair value by most stock market analysts; 18-25 is overvalued; with anything above 25 being considered a bubble (the S&P 500 was well above 25 during the tech bubble of 1997 to 1999).

Personally, given the low-interest-rate environment of today, I see stocks as a bargain if the P/E ratio is between 10 and 12 and corporate earnings are not nose-diving.

It is said that the stock market is the most efficient valuation tool in the world for valuing companies. In 2010, the stock market knew 2011 would be a great year for corporate earnings, hence stock prices moved higher in anticipation of higher corporate earnings.

Even with the latest rise in the stock market, the S&P 500’s current P/E ratio stands at 15.13, while the Dow Jones Industrials’ P/E comes in at 13.77. This would be considered fairly valued.

Some would make the case that any upside surprise in the U.S. economy would result in strong corporate earnings, which would move such a fairly valued market much higher.

The problem with this rationale is the “E” in the P/E—corporate earnings per share. I noted just yesterday how blue-chip companies in the S&P 500 and abroad are struggling in this environment. Over the past month, I’ve been talking about how the recession in the eurozone is causing growth to slow sharply in both Asia and the U.S. (See: Half of the Eurozone Downgraded: Time to Start Worrying.)

In the U.S., this slow growth environment (which I believe could become a recession) means corporate earnings are going to come under extreme pressure. Already, companies are blaming the difficult global economic environment for their lowered 2012 corporate earnings forecasts.

I have a feeling that P/E ratios for both the S&P 500 and the Dow may challenge the undervalued levels closer to 12 or even 11 in 2012, as disappointing quarterly corporate earnings begin to pour in. The market may be undervalued at that point, but I don’t believe the market will perform well in such an environment.

Dear reader, at these fairly valued P/E levels, the S&P 500 and the Dow Jones Industrial Average do not look attractive. If you want to jump into …

Probably as good a benchmark stock for the global economy as you can get is Caterpillar Inc. (NYSE/CAT). If an economy is doing well, it’s building new roads and buildings and that takes heavy equipment. The company’s fourth-quarter corporate earnings blew past Wall Street’s consensus, growing 60% to $1.55 billion on a 24% jump in sales. Caterpillar guided 2012 above current consensus. In addition, the stock market has bid Caterpillar’s shares up some 40 points from last October, to its current price, which is right around its all-time record high. When Caterpillar’s corporate earnings are doing well, that’s a really good sign for everything else.

The stock market has some decent price momentum now, and news from the Federal Reserve that it plans to keep interest rates at their current level going in 2014 is the kind of certainty that investors like. The stock market has accommodative monetary policy, good corporate earnings, and a reasonable valuation to go on. What it needs to take itself to the next level are better economic data. Recent news on durable goods showed a three-percent gain in the month of December, on top of an upwardly revised 4.3% gain in November. Clearly, there is momentum out there. Let’s hope it keeps going.

I am worried that corporate earnings will slow in the bottom half this year. Without growth in employment, U.S. incomes cannot grow and the consumer, Main Street economy will be stuck. A lot of the great earnings we’re getting form large-cap companies are due to their international operations generating the growth. While demand is improving domestically, it’s nowhere near where it was.

Near-term, the stock market is looking good. The S&P 500 Index solidly broke 1,300, and it has performed very well since the beginning of the year, as if a switch on investor sentiment were flipped. Commodities are also confirming the price strength of the stock market, and this is important. Although it’s hard to tell, it’s possible that the correction in gold and silver prices is now over. (See Precious Metals Winners—Three Excellent Wealth-creating Stocks.)

Cautious optimism is my outlook for the stock market right now. With the expectation for 10% growth in corporate earnings, there’s no reason why the stock market can’t accomplish a similar gain for the year or better. If expectations for corporate earnings begin the decline later this year, then all bets are off. The marketplace desperately wants more growth—in the economy and in corporate earnings. Without it, the stock market will sell off just like last year.…

Have you recently taken a look at America’s national debt?

What if I told you that your share of the country’s mounting spending spree is around $48,812 per citizen or $135,262 per taxpayer? This national debt could take decades to pay off!

The U.S. national debt broke above $15.0 trillion and is worsening. President Obama said very little about the mounting national debt levels at his State of the Union address on Tuesday, but you cannot simply ignore the problem and pray it goes away. There’s no magic here.

The reality is that something drastic needs to be done soon regarding the national debt or the country’s financial strength will go down the toilet! Never mind talking about the European debt crisis; just look in our own backyard and there’s plenty of work to be done.

Whether it will be President Obama or the Republicans, I don’t care; but the next president will need to focus on significantly cutting costs and reducing the national debt.

Of course, increasing the revenues the government takes in can also help. Taxes on the top one percent of the higher income earners and corporations are fair play. Revenues are also higher when the economy expands and jobs are created to drive consumer spending.

Get the 14 million or so unemployed Americans off to work each morning.

While there has been no indication of where the major cuts will be from, they will likely be from the top six budgetary areas: Medicare/Medicaid; Social Security; defense/wars; income security; interest on the debt ($223 billion!); and Federal pensions.

We know that President Obama will save money after the recent withdrawal of American troops from Iraq. This will help, but I hope there is not another war or conflict around the corner, or we will be in real trouble. North Korea? Iran? It’s a scary thought.

Where I think there will be additional cuts will be Social Security and possibly Federal pensions. The reality is that cuts and austerity measures are required. Greece, Portugal, Italy, and Ireland are cutting back on spending or they risk defaulting. The U.S. is no different. You just cannot go on and just print money and hope the debt problem goes away.

For months now, the stock markets have focused largely on the debt crisis developments in the eurozone and, in the process, ignored this country’s own debt and deficit issues.

The headline each morning would talk about the European debt crisis. The fiasco in Greece has been front-page news. I can’t recall the last time the U.S. national debt was on page one.

But the country also needs to be careful, as the economic renewal remains …

We have learned that the Federal Reserve is about to leave interest rates at historically low levels for an unprecedented period of time. They also hinted that adding even more liquidity is certainly an option. As expected, gold, silver and other precious metals took off higher. But is there another way to take advantage of this wall of cheap money? Quite possibly, in the agriculture sector. What I’m talking about is potash.

As money floods the system and we see inflation start to move higher around the world, not only will precious metals move up, but so will a lot of other commodities like food. We’ve seen many commodities come down in late 2011, but it appears they are now set to take off for an extended period of time. Higher food prices mean more people will be farming and existing farmers will want a higher yield, meaning more crops for the same amount of space. To achieve, this they use fertilizers

Fertilizer is made of three main components: nitrogen; phosphorus; and potash. Potash, a product made from natural potassium salts, is essential for plant growth and is in huge demand, but is costly. When the prices of commodities fall, farmers use less fertilizer to reduce costs, since they are getting less money on the market for their crops. But when prices of commodities rise, as they will with higher inflation, then farmers want more crops and can get higher prices, so they are willing to spend more on fertilizers containing the key ingredient potash.

Potash Corp. of Saskatchewan, Inc. (NYSE/POT) just came out with corporate earnings that missed expectations, as investor sentiment was hoping for a better return. This might be a good opportunity to get in ahead of 2012 being better than what current investor sentiment is expecting, if inflation in food prices starts to move higher. This potential move up in food prices will result in more revenue to farmers and better corporate earnings for late 2012 and 2013. If the Fed is going to keep the money supply flowing into late 2014, then we could have a very long period of inflation starting to rise, moving investor sentiment later this year into the camp of higher expectations, which would mean that the prices of potash stocks would also be quite higher.

Other companies to watch in this sector are CF Industries Holdings, Inc. Co (NYSE/CF) and Agrium Inc. (NYSE/AGU). If investor sentiment becomes more positive for potash in general, then all of these firms will have stronger corporate earnings. While they have moved off their lows from last fall, they are still far off from their highs.

While I wouldn’t recommend …