During a portfolio review meeting this morning, my client told of a financial program he recently watched that featured a concerned analyst describing how the quality of corporate earnings are currently suspect — given that they have largely been achieved through cost-cutting. In the analyst’s view, companies are just doing business down the same old channels, while hoarding huge cash positions, and that doesn’t bode well for the stock market going forward.

Now let me ask you, at what point would you rather commit your hard-earned money to stocks; when companies are in the throes of expansion, allocating capital, adding to labor, reaching into other markets, etc., or at a point where they’ve survived the worst recession since the Great Depression, purged their excesses, paid down their debt and have, consequently, experienced impressive growth in their margins — that is, when they’re cash-rich and poised to intelligently exploit future opportunities? In other words, would you prefer to enter during an expansion, not knowing at what stage it’s in, or before one gets started (one, that is, greater than the sub-2% rate we’re currently experiencing)?

Personally, I’d choose the latter, which, I caution, is not to suggest that I believe the next great expansion—or, for that matter, the next great contraction—awaits around the next calendar quarter. I make no predictions. My point is simply that, while I only advocate long-term thinking when it comes to stocks, I like what I’m presently hearing with regard to prudence among CEOs. However, I don’t like what I’m presently seeing with regard to imprudence among policymakers, which—healthy balance sheets notwithstanding—could do a real number on stock prices.

Stay tuned…