Stocks, Particularly the High Yielding, Still Preferred Over Bonds

Our economic view was well expressed last week by John Williams, president of the San Francisco branch of the Federal Reserve when he said: “We’re seeing an economy that continues to grow,” but “The growth is frustratingly slow.” Deleveraging of both private and sovereign debt and other liabilities in the developed world continues to be a drag on economic and business growth, and is likely to keep growth slow. The corporate profitability rebound from recession depths is probably over and the benefit from cost cutting slowing. Assuming no near term recession, future corporate profit gains are more likely to be driven by industry cycles, corporate expansion and innovation. As for the markets, it is obvious that investors are avoiding stocks and seeking safety in government and other bonds. We prefer stocks, particularly high yielding and growth stocks over most bonds. However, we remain cautious, holding substantial cash in reserve for both asset protection and to take advantage of opportunities.

Full Article……Summer 2012 Market Commentary