16 Oct 2009 Mairs & Power Growth - Market Commentary
There is little question that the fear gripping the markets in the first quarter has dissipated and that the primary concern among investors is shifting from a fear of being in a declining market to a fear of being out of a rising market. As mentioned, much of this optimism is due to investors’ beliefs that one of the worst recessions since the 1930s appears to be coming to an end

Despite the improving economy and the rebounding stock market, there are some issues to watch longer term. The most prominent of these are rising budget deficits and the increasing federal debt. The concern is that these trends could lead to rising inflation, higher interest rates and a weaker dollar. While these issues are not an immediate threat, it is critical that future federal spending be restrained as the economy and financial system recover. On balance, we continue to believe the long-term outlook for the stock market is favorable. While the stock market is certainly not as cheap as it was earlier this year and a modest pullback would not be a surprise, valuations are still reasonable and the stock market remains over 30% below the highs reached in October of 2007. Going forward, we continue to expect long-term returns to trend toward historical averages of approximately 10% per year.

27 Feb 2009 Mairs and Power Growth Fund - Annual Report
Considering the economic deterioration that took place both here and abroad during the fourth quarter and the continuing rise in unemployment so far in 2009, the outlook appears anything but encouraging. Moreover, a continuing decline in real estate values and an eroding level of consumer confidence also indicate that an early turnaround appears unlikely. However, contrary to what most experts believe, the rapidity and severity of the recent decline in economic activity also suggests that we could be closer to a bottom from which a sustained recovery can take place.

Looking ahead, we believe such factors as home prices, unemployment rates and personal disposable income will begin to stabilize around mid-year and start to show signs of a slow but gradual recovery by the end of the year. This is suggested by a number of factors including the dramatic change in monetary policy which began last fall, resulting in historically low interest rates, significantly lower commodity prices (especially energy) due to reduced world demand and a number of massive stimulative actions coming out of Washington aimed at increasing liquidity, providing greater access to credit and restoring confidence.

While the exact timing of a turnaround in the stock market is difficult to predict, history tells us that coming out of a recession, prices usually begin to move up well in advance of any tangible improvement in corporate profits and the overall economy. Because valuation levels (13 times a rather depressed level of estimated 2009 earnings for the S & P 500) appear quite reasonable compared to the current level of interest rates (less than 3% for ten year U. S. Treasury bonds and 1.0% or less for money market fund rates), we believe the market has significant upside potential. Moreover, a record high level of cash reserves in the hands of investors should provide more than enough buying power to fuel any upward move. In conclusion, the risk/reward ratio for the stock market would seem to be very attractive, especially for those investors who have the patience to endure the possibility of lower prices near-term in favor of a much greater longer term potential over the next several years.