Equity Bull Scenario
Extracted from NY Sun, 8 Sep 2006

Noted market guru Elaine Garzarelli, whose firm, Garzarelli Capital, doles out investment advice to 110 institutional clients with assets well in excess of $1 trillion, has a very rosy, possibly chemically assisted, take on Wall Street: "The stock market is a gift right now, and should be bought on any down days."

Granted, there's a lot of fear and negative sentiment on Wall Street, but there are no surprises; it's all out there, she observes. In this context, she points to such well-publicized market concerns as a possible recession, a slowing economy, inflation, high oil prices, a major tumble in housing, the possibility of more interest rate hikes from the Fed, a slowdown in capital spending, a pullback by the consumer, the Middle East turmoil and the threat of more acts of terrorism on American shores.

But in the face of such worries, Ms. Garzarelli sees a number of significant positives that augur well for rising stock prices. Among them, she points to:

• A slowing economy, which, she says, almost certainly means the Fed is finished tightening. In fact, she expects Fed Chairman Ben Bernanke, sooner rather than later, to make some public comment that the Fed's current credit-tightening cycle is indeed over.
• The Employment Cost Index, which monitors total compensation in the American economy, grew around 3% in the second quarter, suggesting inflation is slowing.
• Mortgage rates, though higher than last year, are coming down somewhat, which should restrain a housing crash and diminish fears of a recession.
• The budget deficit is likely to improve, what with Corporate America making so much money that the government's tax revenues have to rise.
• Oil prices seem headed lower, which should help ease inflationary pressures.
• Better labor costs are down the road, given a glut of labor both here and abroad.

The key, though, as Ms. Garzarelli sees it, is that "inflation and interest rate problems are behind us because of the slowing economy." As such, she contends, "we're in a new phase of a bull market that's ready to break out on the upside at any time."

Other market pluses, as she sees them: the extreme level of bearish sentiment, which traditionally is a positive contrary indicator, and the hoard of cash on the sidelines. Ms. Garzarelli also views the market as cheap, based on a P/E multiple of 14 times estimated 2007 earnings for the S&P 500. Given a 10-year Treasury bond yield of about 4.75%, the S&P 500 should be trading at a 17.5 multiple, which is her target for the index or about a 20% rise over the next 12 months.

Any parting thoughts? "Just stock up on stocks," she said.