Wednesday, March 19, 2008

On the cusp of a massive U.S. equity rebound

If this is not the case we're in big trouble. Yeah I may be naive but look at what the alternatives are. If money wants to be totally safe it can go into 2 year US treasury bills at 1.4% or 10 treasury bonds at 3.4%, inflation adjusted value losing investments it seems. It can go into commodities that are through the roof over the last year, not that they can't go higher. Money can seek a safe harbor in other currencies but that may be an iffy bet at this point after the overwhelming devaluation of the currency of the world's largest economy. If any money is looking to go into higher yielding investments that are structured to insulate risk, that's over. Any yield seeking investment by public companies will be castrated by the regulators or accountants and private investment funds can't risk having the probable illiquidity if redemptions are required. Where can money go? Eventually it must go into the world's largest most regulated and transparent capital market and that's in the U.S.A. And now it must go into equities. The financial companies are stressed, no doubt about it, but that's priced in, if not God help us. Then there so many good solid large multinational commercial and industrial companies with strong balance sheets, dividends, and earnings(earnings even if they are lower than the prior year that produce value adding returns on equity) that they cannot be ignored. When the market turns it will turn big time, in a huge way that can't be traded, that's almost a certainty.

Please note that the U.S. economy can be down, global economic conditions can be negative as well, and U.S. equities can still go up, benefitting those that still have the wherewithal to stay the course.

Tomorrow, next week, after the first quarter earnings of most U.S. banks in mid April, or later, it will happen. If not, who could imagine, it's Wiemar wheelbarrow time? Optimistic, we prefer the sunny side of the street.

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