Equity Strategy- D. Cliggott(Credit Suisse)

Economic and profit expansions are likely to be much shorter than we have grown accustomed to in the past thirty years.The ability of policy makers to intervene in an effort to smooth and extend cycles will be severely constrained until debt levels are reduced and interest rate structures are normalized. Short and slow, rather than long and strong, are likely to be two defining features of the next few profit cycles in the United States.! If this view is correct, then we would expect (1) corporations to keep high levels of cash on their balance sheets, (2)investors to keep high levels of cash or cash equivalents in their portfolios, and (3) P/E multiples to move below - and staybelow - their long term median levels. Within the US equity market, "stable growth" will likely trade at an increasing premium to "cyclical growth".! We think of this set of behaviors as a type of "self-insurance" against the inherent volatility of the unstable world we are now living in. Or to put it another way, think of the relatively low P/E multiples we are likely to see in the future as the price of uncertainty.