Legg Mason’s Bill Miller tells investors in his latest quarterly report that a new bull market is underway and that technology and financial services stocks will lead the way out of the recession.

“Bull markets typically begin when the following four conditions are present: the economy is bottoming, profits are bottoming, the Fed is stimulating and valuations are low. That’s where we are now,” Miller wrote.

He said he likes technology companies because they tend to have strong balance sheets, are flush with cash and trade “at a large discount to the market on a free cash flow yield basis.”

Pointing to how financial services companies were strong performers as the banking crises of the late 1980s and early 1990s abated, Miller said he thinks they will prove their mettle once again despite about another year of “mounting credit losses.”

He continued: “Clearly, the extreme risk aversion that characterized the period from early October to early March is over, and absent some exogenous event or dramatic policy error, it is very unlikely to return. That has allowed almost all asset prices along the risk spectrum to rise.

Miller’s Legg Mason Value Trust Fund has about 55% of its holdings in technology and financial services stocks, and is up nearly 20% year-to-date.

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