I saw a report yesterday by James Paulson (PDF), a Wells Capital strategist, wherein he argues that stocks are cheaply priced at current levels for a number of reasons.  I thought, given my last post speculating that we will see the S&P 500 at 666 again, it was only fair to present a counter-argument.  It is a well-reasoned argument, once you get past his obsession with question marks and exclamation points!?!?!? He has six main points:

1. The rally from March was just returning prices to October 2008 levels following an overreaction to economic conditions.  The new bull market has yet to begin.
2. When adjusted for inflation and the interest rate environment, stocks are at their lowest in terms of price/earnings since 1950, and in the lowest quartile going back to 1870.
3. Extreme inventory and cost-cutting have made U.S. companies more potentially profitable (”profit leverage”) than in a long time.
4. Rally despite “excessive and persistent doubt” about the market and economy suggest that there is not much downside to the market.
5. There is truckloads of liquidity out there.
6. Don’t fight the Fed — with the Fed using unprecedented powers, the market will not be allowed to fall.

I think this is the best thought-out “bull” argument I have seen.  Paulson tempers his argument by saying that there will almost certainly be downtrends and corrections along the way, but now is as good a time as any for a long-term investor to enter the market.

My time to Speculate. I do not disagree with Paulson.  In fact, there are a number of great buying opportunities at today’s levels from a value perspective.  I recently picked up Dun & Bradstreet (DNB) (I will post on this this weekend), for example.  Nevertheless, given the overall continuing economic decline, I believe that we will continue to see plenty of — better priced — buying opportunities for some time to come.