The Bull Charges Ahead

Stocks only seem to want to go higher. Can you blame investors for getting so excited? Housing sales, the focus of the recession seems to be improving; Ford is about to announce a sales increase; 3/4 of all companies are beating earnings estimates; commodities are rising; the employment picture isn't quite so bad; and stock analysts are raising estimates and outlooks for companies. The bull market must be back.

Perhaps the above picture describes the beginning of the next bull market. The economy has clearly seen the worst and we have bounced off the bottom or at least nudged above it. The question investors need to ask themselves is where should stocks be if economic growth will only be 1-2% in the next 2 years and credit is not expanding?

Loews Corp. Chairman Jim Tisch is a savvy investor and has enough assets in his portfolio to be a true gage of reality. The Tisch's are very conservative and always have their eyes open for undervalued assets. Mr. Tisch believes the massive debt held by banks, corporations, and individuals led the economy into the tank. Normally, when a a recession ends, the economy expands 4-6% over the next 2 years. However, this time the credit crisis is not going to go away quickly. New credit will not expand at a normal pace as banks must still focus on liquidating many toxic assets. If credit isn't readily available, then businesses can't expand. If businesses can't grow, employment can't improve quickly.

We now have our eyes wide open and the picture is still a little blurry. Any recovery will be quite tepid and many future problems still exist especially when we focus on commercial real estate, bank balance sheets, and consumer spending. Stocks prices reflect the present value of future earnings and we still remain concerned that revenue growth and in turn earnings will be slower than many investors expect. We maintain our portfolio of stocks but keep cash high and the market hedge in place. Although we won't catch all the upside, it is better to be safe than sorry.