It's not surprising, given the market's strong performance lately, that some serious optimism about equities is building.

One source, Sheldon Liber, who is an architect and investor in Santa Monica, Calif., sent me his rationale for Dow 11,000 (and maybe 12,000) in 2006.

His points (from July 18):


1) Interest rates will stabilize in the fall.

2) Oil prices will soften in the fall.

3) Real Estate always slows down in the fall and with current high prices on the coasts money will move back into stocks.

4) Billion$$$ are sitting on the sidelines at MSFT, CSCO, ORCL, et all and BRK too.

5) AND THE BIGGETS REASON, THE CHINESE START MOVING MONEY FROM TREASURIES TO EQUITIES. How many zillions of dollars (and counting) in bonds can they hold before they realize that equities in good companies are better than holding debt instruments.


He sent me this "P.S." on 7/22, after the Yuan revaluation:

The change in the Chinese Yuan (not tied to dollar any more) has relieved many foreign governments that envision the floating Yuan reducing their current trade imbalances as the Chinese people can afford more foreign goods. This may be a miscalculation. Although the Chinese currently hold a crazy amount of currency in U.S. Treasuries meaning "Dollars" which lost some value the greater picture for them is more buying power. Example: Their $18.5 billion offer for Unocal which would have been hard to raise has now been raised by yesterday's new found Yuan freedom to float higher against the dollar which translates to at least 2% today. The Yuan buys more dollars so their offer can be raised to $20 to $21 billion but not more Yuan. As the Yuan floats ever higher they have even more ability to go after western companies and hold less dollar positions. This supports my thesis further. Look for China to go on a buying spree for the next three years buying our companies not necessarily our exports.
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