TREES INVESTMENT COUNSEL VIEWPOINT (Q1 2007) 

When I was a child, we used to yell "Geronimo" whenever we undertook a slightly dangerous adventure.  As I did not know then, I now know we did this because Geronimo was supposed to be impervious to bullets; and, in fact, he died at a ripe old age.

So did someone yell "Geronimo" when this 4 1/2 year market advance, the longest without a 10% decline in post-World War II history, began? Has anyone shouted it more recently? Thank you!  While "it is different this time" never seems to fly, we can think of several reasons that this bull market has kept going for so long, and may continue for a while longer.

1.  The changing nature of our economy.  We are a much less cyclical economy dominated by services.  The foreign trade sector is larger than ever and acts to moderate domestic swings.

2.  The liquidity bubble.  Interest rates over this period throughout the world have been lower than anytime since WWII.  This has generated rapid credit growth and facilitated buyers of all kinds, including companies themselves, hedge and buyout funds, and foreign institutions, with the means to step in and acquire stocks and bonds.  Real estate around the world has also benefited from this stash of cash.

3.  The market decline of 2000-2002.  While some market indices are at or near new peaks, some have yet to return even close to their prior levels (Nasdaq is at 50% of the levels reached in March 2000).  Frankly, the tech/telecom boom/bust provided a lot of room for stocks to rise.  During the boom, more stable stocks did not budge for years, and many fell to lower than historical valuation levels, while the bust was characterized by a tumbling of the more volatile stocks that benefited during the boom.

We do have some bullets coming our way, however.  Interest rates worldwide are rising and liquidity is beginning to dry up.  The US economy is slowing as are company earnings.  The US housing market has hit the skids.  And, like Jack Bauer on the TV series "24", we will have to deal with the "unknown" unknowns.

Keep yelling... Geronimo!

  
April 18, 2007