International Investing

For all you contrarians, the surest sign of a coming decline is that everyone thinks it’s unlikely to occur.

Reports and surveys of every description say the economy will keep growing, inflation and interest rates are in good shape — and stock prices are a sure bet to rise in the U.S. and elsewhere for a fifth consecutive year.

“Money managers are bullish on stocks for 2007,” says Russell Investment Group, which invests $180 billion, reporting on its latest quarterly poll. The survey found “the highest percentage ever” of managers who consider the market undervalued.

Low levels of risk are priced into VIX and credit swaps. These market professionals think that record profits are more likely to be followed by more record profits instead of lower ones. Either that or they believe that P/E’s will expand. Those are the only two ways for stocks to go up - more earnings or a higher P/E.

What will drive it? It’s not home equity extractions by tapped out owners in a falling real estate market. Its not more consumer credit when savings are negative and credit quality is declining. Some observers say that “liquidity” will save us - in other words we will inflate our way out. Don’t believe it.

Have a safe and profitable New Year -