Seeing the Bullish Case

"I can see why you believe that you have nothing left here."
--Guinevere (King Arthur)

It should be no revelation that market commentary on these pages tilts toward a bearish slant. And, to be sure, there are plenty of reasons to believe that security prices, particularly stock prices, are due for a fall--perhaps a big one.

However, even if one has a pessimistic outlook on financial and economic conditions, there are some plausible reasons for stocks to levitate higher. I have been pondering two in particular.

One is the income producing character of equities. With interest rates once again approaching the 'zero bound,' dividend paying stocks appear attractive--particularly to retirees and others looking for income supplements or replacements. Despite the run-up in stock prices, a solid portfolio of stalwart companies with safe dividend profiles can be assembled with a yield of 3% or more. For those willing to stomach up and downs in account value in return for steady income well above that provided by most fixed income instruments, this arrangement appeals to a large group of investors. As long as rates remain unusually low, equity prices--particularly those of dividend payers--may remain well bid.

A second reason for stock prices to remain elevated is the prospect of Big Inflation. In other countries where inflation has really picked up, stocks usually move higher--albeit in devalued currency. While they may not be able to keep up quite as well as alternative assets such as gold, equities are likely to outperform cash by a substantial margin in the event that inflation really takes off.

For aging baby boomers and others trying to create investment income while hedging against inflation, stocks look like an attractive asset class at this point in time.

position in gold