(Source: The Gazette)
By Wayne Heilman, The Gazette, Colorado Springs, Colo.
March 17--Despite an unemployment rate that is still near 9 percent, corporate profits are at record levels, triggering the biggest wave of mergers and buyouts in 15 years and pushing stock prices higher, a Chicago area investment manager said Thursday in Colorado Springs.
Jim Bowen, president of First Trust Advisors LP, a Wheaton, Ill.-based manager of mutual funds and related investments, kept an upbeat tone about the U.S. economy in a speech at the Antlers Hilton hotel. He spoke before a crowd of more than 100 clients of Morgan Stanley, which sells First Trust funds.
Bowen believes stock prices are inevitably headed higher because interest rates remain near zero, leaving bond prices nowhere to got but down -- a historical trend that nearly always results in rising share values.
"When everybody wants to buy bonds and nobody wants to own stock, how do you think that will end?" Bowen said while letting out a moan. "When every single person wants to own bonds and not stocks, we know that those two lines will meet again," referring to a graph of investing levels in stocks and bonds. Bond prices as measured by the Barclays Aggregate Bond Index peaked last fall, while U.S. stock prices as measured by the Standard & Poors 500 index are up more than 20 percent during the same period.
"The financial crisis has been over for two years, but many of are acting as if that is where we still are." Bowen said. "Corporate America has never been as profitable as it is today, it has never had so much financial strength on its balance sheet as today.
"All I hear is about the 10 percent unemployment rate we had and there is nothing we can do about it. With only 90 percent of the workers working, corporate America is at an unprecedented level. It is a testament to the productivity of American workers."
Brian Wesbury, chief economist for First Trust, had a similar message -- he titled his speech "It's not as bad as you think." The nation's economic output has grown for six consecutive quarters and personal consumption resumed growing two years ago and is now at record levels, he said, arguing investors who buy stocks when the unemployment rate peaks almost always realize double-digit gains and those who buy when the jobless rate is at its lowest level suffer losses.
"If you bought stock at the peak of the unemployment rate (in every recession) since 1948, you made an average return of 16.9 percent in the first year, while if you bought stock at the trough during that same period, you would have lost an average of 6.7 percent in the first year," Wesbury said. "The economy is like the flu -- you feel the best when you are starting to get sick and the worst when you are starting to recover. I believe the stock market is undervalued -- based on corporate profits the Dow (Jones industrial average) should be 15,500."
-----
To see more of The Gazette, or to subscribe to the newspaper, go to http://www.gazette.com.
Copyright (c) 2011, The Gazette, Colorado Springs, Colo.
Distributed by McClatchy-Tribune Information Services.
For more information about the content services offered by McClatchy-Tribune Information Services (MCT), visit www.mctinfoservices.com.
A service of YellowBrix, Inc.