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Strategies & Market Trends : Why the markets will continue higher...

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To: GROUND ZERO™ who wrote (1)	1/6/1998 12:36:00 AM
From: current trend	Read Replies (2) of 745

by Joe Battipaglia, Chairman of Investment Policy 1/5/98 One observation to kick off the New Year is regarding global cash liquidity. The world's largest economy, exporter and importer are all one in the same and that is the United States. The financial health of the U.S. is in very good order. It is important to understand that the U.S. which had been using deficit financing to fund growth, is now in surplus territory. One of the scarce issues is now new issue U.S. Treasury's. So we continue to believe that you will see relative strength in the dollar and lower bond yields. We do believe the Fed will engineer a slight rate cut during the first quarter to keep the overall growth rate of the economy stable. This very good condition for the U.S. economy and the dollar suggests that U.S. equities will still be the investment choice for investors all over the globe. We see Asia as a banking crises that is in the process of being fixed. We see Japan's problems as being long lived and not easily remedied and therefore Japan will continue to lose competitive position on a global basis. Indeed, as far as liquidity is concerned we only have to look at the first new deal of the year which is a $2 billion takeover in the real estate business by Meditrust (MT-NYSE-$36 3/8-Not Rated), to show us just how potent liquidity is right now. Consolidation themes are a focus for us in 1998. Whether you are talking about banking, technology or real estate, I think acquisitions are going to be one of the principle drivers behind the excitement in the stock market in 1998. We have had three fantastic years back-to-back-to-back. I don't think 1998 will be as good as the last three but I certainly believe it will be a positive year. There is too much liquidity around, the U.S. economy is too strong, Europe is in a recovery right now and the big story in the Far East is not the Tigers but mainland China and we believe all of this liquidity will push bond prices higher and U.S. equities higher. Once again we want to be fully invested to take advantage of this opportunity. So there will be bumps in the road but overall on balance this will be a strong year. My fellow strategists are talking about the Dow going to 9000, which is something we have talked about before, but they want to hedge themselves by saying there could be a 20% or 30% correction. No one has given me a clear reason as to why we will have a correction of this magnitude and it is my belief that the only way you get it is if there is a recession or a credit crises. Certainly with the liquidity issue I have already talked about there is no credit crises. As far as a recession is concerned we don't have evidence of that either. Simply look at the data on the quality and the strength of the economy. As far as I am concerned, there could be corrections along the way but on balance another strong year in 1998. ------------------------------------------------------------------------------------------ Does this answer your question as to why the markets will continue higher? CT

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