Still Bullish on Stocks Long Term

• Increased regulation -- This simply raises the cost of doing business and will compress EPS.
  
  
• Future rising rates -- I see rates rising faster than pretty much anyone at this point, though this isn't a 2010 issue.
  
  
• Geopolitical concerns -- Always an issue i
  n the market place.
  
  
• Inflationary pressures -- Again, while I think many have moved back into fearing deflation and a double dip, I'm more concerned with a new sustainable rise in inflation, which would be driven by another round of likely irrational bullishness in commodities like Oil.
  
  
• European de-unification -- The Euros need to move closer together and present a unified front on issues such as naked short selling and CDS's, until they do the Euro block will suffer economic pressure, both macro and market-based.

So while giving the devil his due, I still see stocks discounting far too much in the discounting of valuations. Further, I see our current disjointed set of market rules causing more pressure on these valuations than any and all of the above.

On the bullish side of the ledger, I see much of what I articulated in my 2010 themes for the year. As well as a few other tidbits:
 

• Low Rates -- For now, all-time historically low rates will prove strongly stimulative.
  
  
• The more people say buy-and-hold is dead, the more I believe it will be rewarded in the future.
  
  
• Isn't one of the main market tenets to buy low and sell higher. (Though I've been known to buy high and sell higher).
  
  
• I still stand by my highly variant view of much stronger US economic growth. Frankly, I find it stunning that this is so debated given nearly a year of strong evidence. Recent reports are being ignored and are still showing a condition set much more like a strong V-shaped recovery than the popular belief of L-shaped or a stagflation scenario.
  
  
• I see the labor and housing markets improving markedly. As I said last year, we’ll start seeing job gains versus losses earlier than expected, and this is indeed happening and will continue.
  
  
• As written previously -- "The Apple (AAPL) Tablet will be another game-changing product and the next great extension of the iPhone platform. This product will be the first fully functional touch-screen computer and will usher in a new era of innovation (for Apple and certain chip companies)." The new era in innovation is nearly upon us and the next three to six quarters should be very exciting.
  
  
• Also as predicted, "I think dollar bears will be disappointed and the dollar will be a strong currency, possibly one of the best performing around the globe for the bulk of the year." Further, even though the dollar has rallied hugely, stocks are flat on the year. So while it's disappointing to see stocks lose all their gains on the year, I think stocks have generally held much stronger than many would have thought had you told them the dollar would rally this much six months ago. Further, I still think we'll see global investors buying US dollar-based equities (versus bonds currently) and a transition should occur where a strong dollar is supportive to US equities.
  
  
• Huge Valuation Contraction, especially in Technology: The valuation multiples have declined massively during the first two quarter as EPS has surged as much as 25%-35% for leading companies, and stocks prices have given up most or all of the gains for the year. Metrics on Rev's, P/B and P/Cash have also declined materially and stand again at historically low levels.

Bottom line, as disturbing as the market rules (and market actions of late) can be, the lightning-fast compression in valuations of stocks that are producing prodigious EPS and cash flows should prove supportive of stocks and provide a solid base for another surge in performance in the weeks/months ahead.


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