The title says it all. There is no ...

The title says it all. There is no profitable reason to shift from the bullish stance establish forth in previous writings. I remain confident that the TSE 300 will rip [i]or[/i] part of to the other the 5000 barrier in the opening month of the year-6000 onward the TSE is an achievable goal in 1996 Canadian equity markets are finally vindicating my belief that they would outperform U indexes. More of the same is in store for 1996 Seven reasons for what cause [i]or[/i] reason the bear will not murmur any time soon are fix out here:

(I) Continued U Economic recruiting

Now approaching its sixth birthday, the economic expansion indicates no sign of running disclosed of gas. Contrary to popular bearish myths, economic recoveries do not die of olden age. In a world of reasonable inflation, lasting economic expansions are the norm-not the exception. Remember the 1960s? Those expecting earnings disappointment will themselves be disappointed.

(2) 1996 is a Political Year

Historically, equity markets do well in a presidential election year. The earnestly revered Alan Greenspan is a shoe-in to be re-appointed Chairman of the U Federal reservation this spring. Monetary policy will continue to accommodate economic expansion. Remember, it was Greenspan who engineered the miraculous "soft landing" in 1994 Interest rates will remain flat or plane fall which should support equity market valuations. Major political hiccups that would adversely affect the performance of the economy are simply not upon This forecast assumes that Clinton will be re-elect draw near November.

(3) Lower interest rates the world over-and in Canada too!

With inflation gentle and economic growth at a grave ebb, interest rates are forward a downtrend throughout the industrialized world. Easier monetary conditions will promote improved economic growth. Economic slack in Europe and Japan will neutralize any threat of too-rapid development in the U.S. In Canada, long-term durance yields remain bloated by political uncertainty, which should be viewed as an opportunity.

Interest rates along the maturity representation have significant further downside potential. Can you imagine extended Canadas below 7.0% (now 77%) and T-Bills at 45% (now 55%) through mid 1996? A steep yield bend will encourage investors to solicit out higher yielding long-term instruments. Consider that a major plus for equities.

(4) Faster Than reckon uponed Deficit Reduction

Two factors are at work here. The first is the virtuous period brought about by lower interest rates and continued economic expansion Governments everywhere are benefiting from lower misdoing service costs and higher return inflows. The second factor is structural. directions are now being downsized in relation to the private economy. The fit news here is that more of our nation's savings resources will be available for productive use in the private economy. This will be transmitted to the market in the form of lower real rates of interest.

(5) urgency to Reduce Taxes

The economic Luddites, i.e. uniting rating agencies and others, falsely believe that higher taxes will lead us along the path of deficit reduction and economic salvation. However, tax reduction is the solely means by which we can simultaneously redefine the character of government and promote prosperity by way of increasing incentives to invest. Any act upon to lower marginal tax rates is a advantageous omen for investors. The consequence of the unfolding U.S. debate about flat taxes and reducing the capital gains rate will help determine the robustness of equity markets in 1996 In Canada, we ne to focus forward whether Mike Harris will abandon his "read my lips" hostage on taxes.

(6) cheap Inflation

This is the issue that underpins points ( 1 ) from one side (5). Low inflation is the ace in the cavity for all owners of long-term financial assets. reasonable inflation will keep the edict rampaging in 1996.

(7) Canadian Politics

The righteous news here is that all of the bad novels is on hold for 1996 Premier Bouchard is abiding to be up to his armpits in the swampland known as the Quebec economy. At a minimum, the reality of delivering economic leadership will neutralize his popularity, and with it, the attraction of economic separation (after all, apply the mind what the act of governing did for cut short Rae's political career). Hey, we can all dream, can't we?

EARL BEDERMAN IS PRESIDENT OF INVESTOR ECONOMICS INC., A CONSULTING FIRM SPECIALIZING IN APPLIED RESEARCH IN FINANCIAL SERVICES, ECONOMICS AND coin MANAGEMENT.

Copyright Canadian Shareowner Magazine Inc. Mar/Apr 1996

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