Consider this: Since the last recession, corporate profits (as measured by the National Income and Profit Accounts) have doubled, yet the S&P 500 (SPX) is no higher than it was during the 2001 recession. Corporate profits, as a percentage of GDP, are higher today than they have been in most of economic history. Moreover, it’s becoming increasingly evident that the economic statistics indicate that the recession is in the process of ending.

Sure, the labor market is still a mess -- but there are green shoots even there, with over 20% of Fortune 500 companies announcing hiring plans. Furthermore, according to Challenger, Gray & Christmas, corporate layoffs have declined by a large 55% since their January peak. All of this is consistent with the way recessions end.

Additionally, I take President Obama at his word when he says that 600,000 jobs will be created in the next 100 days. To accomplish this, my guess is a good deal of cash will be spent. Given the already-improving economic statistics, I believe this implies said stats will look even better in the months ahead. Consequently, companies will likely build inventories, make capital expenditures, and employment numbers should at least stabilize.

Granted, there’s a risk that these measures will pull sales from 2010 into 2009, which means the economy could soften again in late 2010. But with the bulk of the stimulus monies hitting in 2010, my sense is that that economic softening just won’t happen.

Then there’s the concern that Treasury yields back up too fast for the housing sector to heal, thus snuffing out the nascent recovery. However, I’m betting the Fed is far more worried about the economy sliding back towards a deflationary death spiral than it is about inflation.

Therefore, my sense is the Fed will do anything necessary to bring interest rates back down until they’re certain we’re past any deflationary event. That likely won’t be until 2010. Hence, I think the recent rise in interest rates (along with the recent decline in the dollar) is a head fake, and I’m tilting accounts appropriately.

All of this suggests that it’s a mistake to get too bearish on equities. Maybe you don’t want to play as hard as I did at the March lows, but, in terms of shorting stocks, I have zero interest. Manifestly, there’s just too much liquidity supporting stocks right now.

As Michael Darda points out in this week’s Barron’s:

“The money base -- which counts currency in circulation, bank reserves, and vault cash -- is near a record high of nearly 2.9 times the stock market’s value. This ratio of liquidity to stocks was briefly higher in February, just before stocks took off, but is still well above levels below 1.5 times for much of the past 2 decades (it was below 0.9 times near the stock market peak in 2007).”

Additionally, even though I remain bullish on crude oil over the long term, in the short/intermediate term, I think oil is stretched and likely to decline further, helping the economic environment. That being said, despite my energy analysts’ cautionary comments, I’m becoming increasingly eager to invest in natural gas. Stocks in this space include Chesapeake Energy (CHK), Devon Energy (DVN), EOG Resources (EOG), Ultra Petroleum (UPL), and XTO Energy (XTO), though these aren’t necessarily stocks I or my firm will be buying.