Investors and corporate managers may be surprised to know that the economy is doing a lot better than they seem to believe, an investment strategist told Las Vegas clients Monday.

"If there isn't enough bad stuff (in the news), we just make it up," Jim Paulsen, chief investment strategist for Wells Capital Management, a subsidiary of Wells Fargo Bank told clients at the Las Vegas Hilton.

The news media continue to focus on such dire topics as a potential outbreak of avian flu, Paulsen said before his speech. As Rita was downgraded from a Category 5 hurricane to a Category 3 hurricane, he said you could almost sense the disappointment of television news announcers.

Meanwhile, investors are focusing on the past rather than the future, Paulsen said.

Stocks are up 65 percent since the low of March 2003, he said, but investors are investing conservatively and focusing on bonds. The situation is the reverse of a few years ago before Internet stocks and technology stocks blew up, driving the market lower.

"In early 2000, you couldn't convince anyone the boom was over," he said, referring to the Internet and technology stock bust that also deflated the overall stock market. "(Today) it is a disfavorable environment for bonds and a favorable environment for stocks."

Economic gloom seems unwarranted, Paulsen suggested. Unemployment is low. Jobs growth is running 2 percent above a year ago.

"We've got an incredible profit story going on quarter after quarter," he said. "Corporations are sitting on a boatload of spending power and not spending it. The business sector could start spending its cash hoard. Europe could pick up. It's the one area of the globe that hasn't done well. We could have improvements in the international trade deficit. Oil could just as easily decline as rise from here."

Given his outlook, Paulsen particularly likes tech stocks, partly because they would benefit from corporate spending.

"It's a sector that everyone hates. There's not a lot of risk in it, because everyone who wanted out (of tech stocks) is out," he said. "A lot of the weak players have been washed away."

Paulsen said he also favors basic material companies and industrial companies, because they have become leaner as they lost market share to overseas operators. The weakening dollar soon will start helping these companies compete overseas, he said.

Paulsen said he thinks retail stocks could rebound if oil declines to $50 a barrel, because high fuel prices are believed to reduce consumer spending on other goods.

"The consumer is going to stay in pretty good shape," he said.

The one thing that would worry him would be a big jump in long-term interest rates, because that would affect housing.

Meanwhile Paulsen is bearish on the U.S. dollar. He therefore favors foreign stocks, in particular those of developing countries. If the dollar loses value, stocks in those countries will benefit, he said.

"The currency in this country is likely to continue to weaken," he said.

The dollar has lost value compared with the euro, Japanese yen and Canadian dollar. He expects the dollar to start losing buying power in comparison to so-called emerging economies in China, the Pacific Rim, Mexico and South America.