Gurus see reasons for optimism
Pessimism is reigning among investors, but some of the world's best strategists are finding opportunities in the market.
There are plenty of reasons investors are worried about the stock market right now -- fears of a double-dip recession, the government's ballooning balance sheet, and the lingering pain caused by the 2008 market meltdown are just a few examples.
But where there is fear there is usually opportunity. And recently, several of the market's top minds have said they are finding plenty of opportunities around the globe.
Among them: hedge fund guru David Tepper, who gave a rare interview this week. Tepper told CNBC that he's been upping his exposure to stocks. Tepper, who made a prescient bullish call on banks in early 2009 and has an exceptional long-term track record, said the Federal Reserve's resolve to spur growth is a big reason for his bullishness. He says if the economy improves, stocks should do well -- and if it doesn't, that will lead to a new round of quantitative easing from the Fed, which will also benefit stocks. The resulting situation means a downside that's not that big, and big potential upside for stocks.
Another guru who is finding value is David Winters, whose Wintergreen Fund also has a very strong track record. Winters said this week that he sees a "bright future" for the world, and sees “lots of undervalued securities” right now. Winters also told Bloomberg that a key, overlooked economic indicator -- rail car loadings -- is giving bullish signals. Winters says rail car loadings are "one of the best economic indicators", and are up this year. He's also bullish on Asia.
Charles Schwab Chief Investment Strategist Liz Ann Sonders is also optimistic about the economy. Sonders was one of the few to correctly call the start of the recent recession in late 2007, and her May 2009 call that the recession had ended turned out to be right on as well -- the National Bureau of Economic Research reported this week that the recession officially ended in June 2009. Now, she says in her latest market commentary that she doesn't see a double-dip as being in the cards.
“While slowing, the economic engine continues to move forward,” Sonders says in her latest market commentary, written with Schwab’s Brad Sorensen and Michelle Gibley. “We believe this forward momentum will continue and, in fact, accelerate again, while we remain relatively optimistic on the market’s prospects. While we don’t discount the possibility of a return to recession that would likely be a tough blow to the market, we remain firmly in the camp that such a scenario will be avoided.” Sonders adds, however, that the Fed's continued stimulative tone may actually be keeping the recovery from gaining steam, since low interest rates make the cost of inactivity low for individuals or businesses who are holding onto cash.
Also optimistic in the midst of an environment filled with pessimism: Kenneth Fisher, the money manager and author whose writings are the basis of one of my best-performing Guru Strategies. In an interview with Forbes, Fisher says he's learned "that when people are adequately fixated on the negative, pessimistic, skeptic and snarky; to be in such a mode as to be chewing the cud, ruminating, looking for problems everywhere, they’re not likely to find them because, if they were there, they already would have found them.” The time to be bearish, he says, isn’t when pessimism is high; it’s when “you see bad things other people aren’t fixated on. Right now, people are fixated on every bad thing they can find. So this is, I think, a good time to own stocks.”
Two areas Fisher likes: stocks of firms that have some growth potential and strong dividend yields; and areas viewed as boring and unattractive in the developed world, but which do very well in the emerging markets and have "below-average valuations because they’re dominated by that developed-world thinking.” Airlines are an example.
Finally, one guru expressing somewhat of a contrarian view on the economy is Rob Arnott of Research Affiliates and PIMCO. While many are now talking about the possibility of deflation, Arnott tells the Los Angeles Times that such concerns could actually end up resulting in inflation. He thinks deflation fears will soon mushroom, the Times reports, and as federal stimulus spending winds down he sees a “pretty good likelihood of another recession” in 2011. “But another downturn also could force the government to pull out all the stops (again) to try to revive growth,” the Times‘ Tom Petruno writes. “That, to Arnott, would set the scene for a rise in inflation, in part a result of the huge sums of money sloshing around the financial system, with more likely to come.”
The near-term deflation fears could cause investors to dump inflation-fighting investments, such as inflation-indexed Treasury bonds, commodities, and real estate-related securities. And Arnott says that would create big opportunities in those areas shortly before inflation hits. “I expect to see a generational opportunity to load up on inflation hedges in the next 12 to 24 months,” he said.
John Reese is founder and CEO of Validea.com, a premium investment research site, and Validea Capital Management, a separate account advisory firm. He is author of the new investing book, "The Guru Investor: How to Beat the Market Using History's Best Investment Strategies".
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