Various quantitative and impressionistic measures of fear all point to same phenomenon: a very elevated level of fear in the equity market. Money is pouring into Treasuries and money markets. This is quite typical of those periods when equities are very attractively priced, thanks to the herd stampeding in the wrong direction.
Fundamentals heavily favor well-selected stocks, as we have noted previously. Strong earnings, low multiples, great balance sheets, robust Asian economies, and low inflation and interest rates are working -- and will likely continue to work -- heavily in favor of equities. Stocks are very rarely as cheap relative to interest rates as is currently the case. Absolute valuations of large cap stocks -- the market "generals" -- are lowest in more than a decade.
Icing on the cake is the cycle of declining interest rates। This cycle is well underway in Treasury market. We expect FED to join in shortly. Low valuations, high fear, and falling interest rates constitute a near-ideal environment for purchasing those equities whose earnings are likely to hold up in context of consumer recession/quasi-recession.
Of course, our bullish thesis rests on the assumption that the FED will perform its mandated function of providing adequate liquidity and supporting the economy. We do have a high degree of confidence that this will in fact transpire, given the tremendous and growing political and market pressure on those weak sisters huddled in their marble palace on Constitution Avenue.
