NOT YOUR CONVENTIONAL BULL MARKET

Credit Suisse analysts must have been furious Monday morning.  After working all weekend on a brand new upgrade of the U.S. equity markets they needed one more day to touch up the report before issuance.  Lo and behold, Government Sachs beat them to the punch with their own upgrade of U.S. equity markets on Monday morning.  Poor guys because it’s one heck of a good report.  Credit Suisse not only upgraded their outlook on U.S. stocks (new S&P target of 1050), but issued an excellent piece on why this bull run is unlikely to be similar to past bull markets.

They list 6 reasons to be less optimistic in the long-term and why this will almost certainly be a W shaped recession (they currently believe we are on the first V so expect a double dip down in 2010). The 6 reasons will sound awfully familiar to regular readers, but CS does a nice job of condensing them:

1) There is over $7 TRILLION in excess leverage in the system:

2) Global housing prices are still too high:

3) U.S. housing inventories could hinder home prices for another 2-3 years:

4) Global growth going forward is likely to be below trend:

1.   a lower investment share of GDP tends to lead to lower investment growth;
2.   the demographics are clearly deteriorating (the working age population is declining in Europe from next year and is contracting by nearly 1% pa in Japan)
3.   there is more red tape / regulation.

5) Margins are likely to contract further:

1.   corporate tax rates may have to rise
2.   emerging markets are causing commodity prices (the input costs for developed market companies) to be structurally higher.
3.   more red-tape / regulation.

6) There is no big cap bull market theme:

Each bull market typically needs a different driver. We believe that the new key themes of the new bull market are the Non-Japan Asian consumer and technology.  Yet, European equities don’t have strong exposure to this theme.

Source: Credit Suisse