** Another Bullish View **
These are hard to come by these days <GGG>:
by Joe Battipaglia, Chairman of Investment
Policy 9/14/98
As far as I am concerned, the market spent the months of
July and August perilously going towards a bottom as it
expressed extreme pessimism on several obvious issues.
First, there was the fear of financial meltdown in Southeast
Asia. Secondly, there was the fear of a global economic collapse as weakness
spread to include other emerging markets. Then there was the concern of the
return of communism to Russia. Finally, there was the frightening specter of an
impeachment process in the United States of the most influential man in the
world.
These factors have lead to a dramatically oversold position for the market,
which I believe is not sustainable. In fact, I believe the market's bottom was
reached a weak ago and that we are poised for an explosive upside rally. The
reasons for this rally are as follows: First, we have record low interest rates that
will remain intact tact for at least the near term. Secondly, American
corporations will emerge from this turmoil as "world beaters". These company's
will gain market share against competition and will re-enter emerging markets
once again in a leadership role with the strength of a global currency, the US
dollar at their back.
Interestingly enough, I believe the emerging markets will once again be a draw
for capital as they work their way out of recession. However, this flow of
capital back into the emerging markets will not be such a drain to prevent our
equity markets from moving significantly higher as one of the few areas of
opportunity in the world. Therefore, I see global liquidity looking for investment
opportunities as a major factor in driving the US equity markets substantially
higher. Perhaps contrary to popular opinion, I do not believe that we will see a
global economic meltdown because the US Treasury and Federal Reserve, in
conjunction with the G-7 nations will not stand idly by and witness a contraction
in global liquidity.
In terms of a global economic collapse; as we have said from the beginning, the
United States will continue to carry the rest of the world as it has for most of
the post war era. As far as Russia is concerned, it is not a communist state but
merely a country in disarray attempting to transition itself from a third world to a
second world nation, which is a long term process. As for the potential for
impeachment proceedings in The United States, I think that last week's market
action is very telling. Upon delivery of the report, we saw the market drop
significantly over the course of two days. However, on Friday the market
rebounded and mounted a rally. once it had a chance to see that the report
contained nothing more than various depictions of sexual escapades. This being
the case, I expect the financial markets to continue to rally because the events
depicted in the report may or may not be impeachable offenses and may leave
some room for compromise. In this scenario, the President may very well finish
out his term with a stern reprimand. These potential outcomes would be well
received by the markets. All in all, I think we are going to have a massive rally
commencing shortly which will take us to nominal new highs before the year is
out. I am fearful that we will miss it if we do not act now. Therefore, I urge you
to take this message to our clients and build positions in both large and small
companies and be prepared to take advantage of the Transportation and
Financial Services industries since they are the most depressed.
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