The US will avoid a double dip

ON NORTH AMERICA

As frustrating as the current environment is, we believe the US market merits a much higher valuation level than it is currently being accorded.

Unless the US economy slips back into recession – a scenario we view as quite unlikely – and corporate earnings turn down, we would expect the market to be meaningfully higher than it is now in the next six months to one year. Former Federal Reserve governor Lyle Gramley, an economist whose work we greatly admire, puts the odds of a double-dip recession at about 10% to 20%, while work by two researchers at the Cleveland Fed, Joseph Haubrich and Kent Cherny, put the odds of a double-dip at about 12%, the low end of Gramley’s range. If the economy avoids recession and continues to recov...