“This rally has taken stocks up 55% from their Mar. 9 low, as measured by the Morgan Stanley All World Index. That’s far bigger than any global bear market sucker rally,” Fisher writes, reiterating his previous contention that we had been in a “reverse bubble” — a climate in which fear pushed prices down to irrationally low levels. “In this mirror image of a buying mania, people can see only the negatives,” he says. “But the positives are there and will be reflected in stocks before long.”
Among the positives Fisher sees:
- Housing affordability is excellent, with the median U.S. home price now 2.8 times median family income, down sharply from 3.9 times three years ago;
- Global leading economic indicators in total are at their highest level in a decade;
- Productivity is up 2% from a year ago;
- The financial crisis is over, with most rate spreads having returned to precrisis levels;
- Cash in U.S. money market funds equals 42% of the stock market’s capitalization, more than twice what it was at the end of the bears ending in 1982 and 2003.
Fisher says stocks are still cheap, based on comparisons of prospective earnings yields to long-term interest rates. He also explains why stocks are cheap in relation to commodities. “And what do the bears say?” he asks. “That earnings will be low this year. Old news. So what? I expect S&P earnings (before writeoffs) of $70 next year. The market is trading at 13.6 times that sum.”
Fisher offers a handful of stock recommendations, including Emerson Electric (EMR), Dow Chemical (DOW), and Petrochina (PTR).
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