Why Stocks Won't Fall

Although I'm no raging bull on the broader markets, I feel compelled to provide a counterpoint to Doug Kass' recent column, titled "Why Stocks Will Fall."

First, near the beginning of the piece, Street Insight's resident bear says the market got the better of him in the second half of 2006, citing suspended disbelief "despite growing signs of escalating economic and geopolitical risks."

I certainly can't argue that these risks don't exist throughout the world. In fact, things seem pretty crazy these days. If there is any sign of improvement in Iraq, I certainly haven't seen it. Iran is probably building nuclear weapons. Hugo Chavez is busy nationalizing companies in Venezuela, and Russia is cutting off oil supplies to Europe.

On top of that, there has been an explosion in hedge funds and incredibly complex derivative instruments, a decline in the housing market and a big round of rate hikes from the Fed. In addition, the U.S. still has fairly large trade and budget deficits.

However, we can't ignore the fact that, through all of this strife, the past few earnings seasons have been pretty good. Because companies have been doing fairly well throughout some fairly turbulent times, I don't believe it's crazy to think that the primary focus of investors should be earnings. We can't totally ignore the big picture, but earnings are among the most important determinants of stock prices, so for the market to fall apart convincingly, we'll need to see broad-based earnings weakness and/or a multiple retraction.