Why Tech Is the Place to Be

I hate to say it again, but isn't this economic setup basically ideal for the bulls? Energy spiked from 2002 to 2006, but inflation remained in check while the broader economy boomed and the Fed was able to raise rates from 1% to more than 5%. Such an economic environment has been rather amazing in its own right, and the doubling of the Nasdaq from the depressed levels of 2002 has at least partly reflected that boom.

But the economic setup for 2007 and 2008 might be even more amazing. Now it looks like we have a cyclical bear market in energy, as oil needs to rally 40% or so to get back to last summer's highs. The broader economy softened just a bit in the second half of last year, and housing's inventory issues really seem daunting.

Energy prices certainly impact inflation and inflation expectations, and the decline in oil will have an impact one way or another on the government's inflation measurements. I would not argue that energy's decline won't save the consumer -- because energy's bubble didn't kill the consumer. I just don't think the consumer needs saving, as evidenced by the continued growth in consumer spending even as the bears continue to promise the consumer's demise.

But if the second derivative (the growth rate of the growth rate) of the inflation readings are going to reverse and inflation is going to head back down, partly because of energy's decline along with a softening economy and housing problems, the Fed will really want to cut.

As I've been saying since early last year, when I first started talking about the potential for an echo techo bubble for 2007 and 2008, I think tech and Vista-related names will be big beneficiaries of this macroeconomic and monetary setup.

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Cody Willard is the manager of CL Willard Capital Management, LLC. He is a regular guest on Fox News, CNBC and other networks, and he writes a monthly column for the Financial Times. He is also an adjunct professor at Seton Hall University and the author of TheCodyReport.net, a monthly stock market newsletter. Willard appreciates your feedback -- click here to send him an email.