7 Reasons the Bulls to Run in March

With all the talk about debt, deficits and value destruction in the news lately, I figured you could stand to hear something positive for a change. So with thanks to the analysts at ISI Group in New York, here are some strengths in the U.S. and global economy to put into your mix of thoughts:

7. The Recovery Is Just Getting Started: The past nine economic expansions have lasted 62 months on average. We are probably now in only the eighth month of the current expansion. (An expansion starts when a recession ends.)

6. We Have Years of Growth Ahead: The last expansion, from late 2002 to mid-2007, was 73 months, or slightly longer than average. Other recent expansions included 120 months (1991-2000); 1983-1990 (92 months); 1980-81 (12 months); 1975-1979 (58 months); 1971-1973 (36 months); 1961-1969 (106 months). So you can see, most are multiyear affairs.

5. Yes, the Labor Market Is Improving: Unemployment may be stagnant, but on a trailing 12-month average basis, it is improving quite a bit, which is how investors tend to see it. (The one-month snapshots are deceiving). As the labor market improves, retail sales are turning up, and as retail sales turn up, the labor market has improved. That's another one of those virtuous cycles.

Layoff announcements have declined to a new low. Again, as the labor market has improved, oil prices have increased, helping to explain the sharp +89% annualized increase in the rig count and last week's purchase of Smith International ( SII) by Schlumberger ( SLB). As the rig count has risen, layoffs in the oil patch have diminished. That's another virtuous cycle.

4. Exports Up Even on a Strong Dollar: U.S. goods exports are up 36% annualized in the last six months. Exports to emerging-market countries, which account for more than half of U.S. exports, have surged at a 42% annualized rate, led by Mexico and China. Exports to developed countries are up 31% annualized, led by Canada and the United Kingdom. And this is all with the dollar trading strongly compared to the euro and other currencies. Naturally, a lot of those exports reflect the global swing higher in inventory after huge drawdowns in 2009, but they are also powering big recoveries in other countries besides the U.S., with Russia, Mexico and Korea seeing among the most prominent rise in exports, at +79%, 55% and 40%, respectively.

3. China Is Still Red Hot: Although the Chinese stock markets remain under pressure due to a tightening of money, ISI's survey of Chinese sales rose last month to the highest level in a year and a half. Last week saw a surge in Chinese vehicle sales and purchases of U.S. goods.

2. China Is Not the Only Booming Region: While the global recovery from the 2008-09 wipeout is solid, some countries are posting much better results than others as successful sets of actions are differentiating themselves. This is called an "asynchronous" recovery by economists. The best real GDP reports in the fourth quarter came from China, +9.9%; Indonesia, +5.9%; U.S., +5.7%; Japan, +4.6%; Philippines, +3.8%; France, +1.9%. Among the worst: Latvia, -8.9%; Greece, -3.9%; Czech Republic, -3.1%; Spain, -0.7%.

1. Attitudes Are Improving: Optimism is spreading, which is important as confidence is a huge part of spending by both countries and individuals. USA Today reported last week that nearly two-thirds of Americans call their outlook for the United States over the next 20 years optimistic, and more than six in 10 say today's youth will have a better life than their parents. Meanwhile, the Business Council reported that top U.S. executives say their companies are aggressively planning to grow, according to a Reuters story. And Business Week reported that U.S. executives are boosting earnings estimates at their fastest pace since 2002.

I love listing this news, as it helps to explain why investors retain their resilience. But I would be remiss if I did not also point out that so far bank loan officers don't seem to share in the positive vibe. Declining bank loans in the U.S. and flat lending in Europe help explain why money growth is sluggish in both regions, according to ISI analysis. Weak money growth will pose a big problem for economic activity, as companies and individuals simply must have more access to reasonable amounts of credit -- not crazy amounts, just what used to be considered normal -- to grow.

The strange and unexplained element in all this is that short-term interest rates have never been essentially zero for the biggest borrowers as they are now. And when I say never, I mean going back to at least the 1700s, according to analysts at Grant's Interest Rate Observer. Pessimists could say that if you can't get an unbelievably strong recovery when rates are at zero, then how are you going to get even a modest recovery when rates begin to rise, as they are now. We'll leave that very good question for another day.

For now we'll just conclude that growth is robust enough to support at least a modest recovery over the next year, and that well-run companies facing global demand should continue to attract investors' interest enough to keep the market chugging forward.

Expectations for that growth will be uneven and exasperating at times, as in the last month, which means our eyes should remain on the horizon rather than at our feet. That's what makes this a very tricky period in which to be successful as an investor, as gains will come in spurts and will be interspersed with some harrowing declines. Stay positive and focused, and roll with the punches.

Jon Markman is editor of the independent investment newsletter The Daily Advantage.

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