Roger Nusbaum submits: The February 13 issue of BusinessWeek has some shockingly bullish analysis. In one article it was noted that Ed Yardeni thinks the second half of this decade will look similar to the second half of the 1990s. He cited what he sees as similarities between 1994 and 2004, and that when the rate hikes end stocks will take off like they did in 1995.
Neil Soss from Credit Suisse believes in a 'flow of funds' argument that says money has to go somewhere and he thinks that means stocks and Real Estate.
The magazine notes that when four of the last five tightening cycles ended stocks went up an average of 15.5%.
Furthering the bull case is all the cash that corporations have, and earnings growth of 12.6% year over year.
The cover story was titled Why The Economy Is Stronger Than You Think. I thought this article was a little more theoretical about things like savings rates, accounting for efficiency gains more accurately and re-categorizing money spent on education as investment instead of consumption.
I don't buy into a lot of the first article. The one time the market did not go up when a tightening cycle ended was 2000. The yield curve looked similar to how it looks now.
Mr. Soss' comment seems incomplete. Following his logic there would never be any stock market cycles. I have to think that maybe his full quote was edited down and some of his meaning didn't make the cut.
The theoretical cover story has a big flaw. Assuming every theory is correct, there is nothing that says that using a better or different way of accounting for these things has to result in the economy actually caring that future benefits from product development will matter today.
The articles are worth reading. It is a good idea to read content that challenges your opinions. It makes you a better and more informed investor.