There are parts of the market that are frothy and there are parts that are extremely cheap. Bull market, bear market; this has always been the case.  The names may change but the culprits are always the same. When you invest in pie in the sky, expect to get the pie in your face. I am very positive on equities for the following reasons:

1)      We are running out of publicly traded companies. The market is shrinking due to share buybacks, M&A, and the high cost of being a public company. The demand for quality is greater than its supply.

2)      The world is getting richer. Incomes, portfolios, houses and other assets are growing in value. At the same time, investors, institutions and state-owned pensions are swimming in cash. Cash has to go somewhere and it’s not going to be happy earning 0% while uninvested.

3)      Population Growth and demographics. North America’s population is growing, people have to live somewhere, work somewhere and spend money somewhere. We are in the early innings for the need of services that will support an aging population.

4)      Companies are shareholder friendly. Smart managers are focused on cost containment, share buybacks, reducing debt and increasing dividends. Good time to be a shareholder, bad time to ask for a raise. Focus on shareholder yield.

5)      In context of next to nothing on bonds and cash, I’m sticking with stocks. I’m finding lots of companies with free cash flow yields in excess of 7%, high Returns on Equity and Return on Capital, low debt and shareholder friendly.