BOECKH INVESTMENTS INC., 17501002 SHERBROOKE STREET WEST, MONTREAL, QUEBEC. H3A 3L6 TEL. 5149040551, INFO@BCCL.CA
APRIL 22, 2010
The Economy vs The Stock Market
The global financial market rally is now in its 13th month. As we have pointed out
repeatedly, it has occurred against an unsettling, uncertain and unbalanced macroeconomic
backdrop. There is an array of structural problems that could derail the recovery once
momentum from fiscal and monetary stimulus ends. However, slower than expected growth
isn't necessarily a big negative for investment returns. Sustainability, liquidity flows, interest
rates and longterm profit expectations are crucial variables. In this letter we offer a brief
review of what we believe will be the weak link in the U.S. recovery and explain how investors
should position themselves for it.
Forecasts for the durability of this bull market are wildly divergent, and with good
reason. Most signs of recovery are clouded by the influence of government stimulus and
reflation efforts. Moreover, year on year comparisons are misleading. Almost anything would
look better than the abyss we were in a year ago. However, a common mistake many of the
more bearish analysts are guilty of, is the assumption that investment returns are predicated on
their nearterm assumptions of the GDP growth rate.
In terms of the negatives, runaway publicsector deficits and debt growth are the
greatest threats, which we will discuss in detail in a coming letter. However, there is likely at
least a year or two before this weighs heavily on markets. The reason is that a massive fiscal
THE BOECKH INVESTMENT LETTER WWW.BOECKHINVESTMENTLETTER.COM 2
drag is likely to hit the U.S. and other economies in 2011, in good part from tax increases.
While extremely negative from a supply side perspective, it should help cool the angst coming
from debt projections at least temporaril