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No ‘End of the World’ Stock Market Trade

Wednesday, 13 Apr 2011 08:23 AM

By Larry Kudlow

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There's a lot of pessimism in the air right now.

This pessimism is rooted in themes I’ve been discussing for week and weeks – namely, lower profit margins from spiking energy, food, and raw material prices; supply-chain disruptions from the Japanese disaster that cuts into top line sales revenue; and gasoline price hikes depressing the consumer.

It’s all there and it's all a problem.

But, I do not believe there's an end of the world stock market trade here. Corrections come and go. We may be correcting.

However, the level of corporate profits, which are the mother's milk of stocks, is rising — perhaps 12 percent in the first quarter and something like that for the rest of the year.

The Fed is easy. And it will remain accommodative even after QE2 ends.

Now I do worry a lot about the inflation from the depreciating dollar. And import prices are rising now 9.7 percent for the year ending March. This is bad.

But on the positive side, global growth, especially in Asia, is solid. Railroad shipping volume is picking up steam. The jobs picture is improving. Manufacturing is strong. Business CEO and CFO surveys are optimistic. Credit markets and financial conditions have recovered.

Even the Washington, DC story is improving with new budget cuts and a potential compromise on a higher debt ceiling tied to spending reforms. And for now, tax rates are low.

All I want to say is this is not the end of the world. There are pluses and minuses. It's not a one-sided bear trade. I still believe in longer-term optimism.

And remember, there are always ways to invest profitably.

To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.

© Creators Syndicate Inc.

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