Why Economy is still strong

By Yaser Anwar, CSC of Equity Investment Ideas

Merrill Lynch's Chief Economist, David Rosenberg put out a piece recently which echoed a lot of the points we've been echoing here recently. He outlines five reasons why investors shouldn't panic:

1. We've gone 820 sessions now without a 10% correction in the broad market, which is the third longest stretch ever. We have been overdue for a pullback for some time.

2. The forward P/E has compressed to a mere 14.1x – back to where it was in mid-October 2005 right around the last time the market was when it began to find its legs.

3. Massive buybacks – over $100 bln this year or +22% year-over-year.

4. Earnings backdrop remains strong (at least for the current quarter). Negative pre-announcements remain lower than last year's levels.

5. Inflation expectations are starting to subside. Gold, Copper, Silver, and other major metals are all well off their recent highs, the dollar is strong, and the yield curve is flattening again.

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