Eski,
This has been said many times for several years..The statements made by LU today are VERY bullish going forward. LU is expecting 30% earnings growth. Recent upgrades (before today) predicted this report exactly. One of the analysts cited a 2X next years earnings as a justifiable multiple given strength, market dominance and predictability. 2 X 30 X next years estimates of 1.55 is in the low 90's. Also, take a look at DLJ's view of the market in genereal..
Brian
Summary of Tom Galvin's Weekly Market Comment Merck and WorldCom Added to DLJ Focus List
The evidence continues to mount that the economy is moderating by its own devices and that a lack of inflation signals will keep the fed in a market friendly neutral position. Similar to may, the june cpi was flat which is the first time since 1986 that the consumer price index has registered flat results for two consecutive months. We are living in a consumer deflationary boom with increased supply of goods and services exceeding demand thereby keeping inflation benign. Rather than paranoia regarding higher inflation and interest rates in a year's time, i expect the topic will be concerns of broader based deflation. The internet evolution is changing the way consumers look at goods which is changing the way companies are pricing their products. Similarly, the introduction of the Euro will create greater product pricing transparency in Europe which will have a spillover effect globally on company pricing strategies as well as the downward impact on inflation from the acceleration in M&A activity which leads to a battle for market share. Our non-consensus view on an Asian recovery is that pan-Asian real GDP growth in 2000 and 2001 should average (including Japan) 2% to 4% which is positive, but not strong enough to ratchet global inflation higher. It is this strategist's opinion that nominal bond yields track nominal GDP. First quarter GDP growth of 4% and inflation expectations of 2% led to 6% (4+2) treasury bond yields. As consumer cash flow moderates owing to an 80% decline in mortgage refinancing volumes and elimination of the tax refund effect, the economy should moderate to roughly 3% resulting in treasury bond yields by year-end of 5.30% relative to 5.90% today. With profit growth of 12% this year and next which is dramatically faster than bond coupons, we continue to view stocks as the asset class of choice. Removing the threat of higher interest rates reduces the need to chase price dependent commodity stocks saving for a few selective margin rebound candidates. In a low inflation environment, unit growers outperform as can be found in tech, telecom and healthcare. To that end, we are adding Merck and Worldcom to the DLJ focus list.
The Return of Nirvana
Last week's commentary made the important point that the economic data releases on retail sales and inflation would play a pivotal role in the near term direction of monetary policy. The net result was extremely positive and we reiterate our position that the FED will remain equity market friendly. The positive view on the domestic economy is bolstered by the opinion that the systematic risks remain deflationary not inflationary or reflationary. This was evidenced in the flight to quality in Treasuries following the Argentine devaluation. The probability of a devaluation by China is rising, but we think it is more likely to occur next year. Upcoming Economic Data releases is also available.
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