Trouble abroad, but positives at home
While Greece and Europe are dragging the market down, the US economy is trying to pull it back up.
Greece's debt woes are continuing to dominate the news and roil the U.S. markets. But while the problems in Europe -- and America's own debt problems -- may provide some stiff headwinds, the U.S. economy is continuing to show strength.
Somewhat lost in the Greek hubbub, for example, was news that the U.S. added close to 300,000 jobs in April, nearly doubling the much-welcomed 162,000 figure from March.
The turnaround we've seen at home hasn't been lost on some of the top strategists I follow, including Warren Buffett. In an interview with CNBC this week, Buffett said that he's seen "real strength" in the economy over the past couple months.
"The economy has picked up, I think, a lot of strength in March and April," he said, citing improvements in the businesses his Berkshire Hathaway owns. While the economy isn’t back to where it was a few years ago, he says the rebound is more than just an inventory rebuilding. "It's real movement," he says.
Lakshman Achuthan, the managing director of the Economic Cycle Research Institute (which has an excellent track record of economic forecasting), also had positive comments on the U.S. economy. He told Yahoo TechTicker that his company's leading indicators are signaling that, while growth is likely to slow down, a new recession is not on the horizon. "The ‘double-dippers’ will still be denied," Achuthan said. He said all recoveries at some point "throttle back," and that this recovery will be no different. But he expects to see sustained job growth through the end of the year, and says that -- contrary to popular belief -- the U.S. consumer isn't dead.
Another top market mind, Pimco CEO Mohamed El-Erian, says the Greece crisis will have negative -- and positive -- impacts on the U.S. markets. On the bright side, he told CNBC, Europe's problems will mean more investment capital will be diverted to the U.S. On the downside, however, he says that the crisis is increasing investor risk aversion, meaning most of that money will go into bonds, not stocks. And the debt crisis will act as a deflationary shock to Europe, hurting global demand when the economic bounce was already starting to hit some headwinds, he says. El-Erian also cautioned that the U.S. must get its own financial house in order if it wants to avoid running into a similar fate as Greece somewhere down the line.
Two other gurus are continuing to find opportunities in the market, however. One is Steven Leuthold, the longtime bear who turned bullish back in the winter of 2008-09. He told BusinessWeek that he's shorting Treasuries and targeting high-yield stocks. Leuthold is also dumping junk bonds, whose spreads he says are no longer very attractive. "Since we think interest rates are headed up, there’s probably as much risk in bonds as there is in stocks now," he says. Leuthold likes consumer electronics stocks, and he's also high on "clean tech" firms that are involved in wind or solar power or efficient batteries.
Contrarian guru David Dreman, meanwhile, says he's keying on large-cap value stocks. He says large-caps have significantly underperformed mid- and small-cap stocks over the past decade, and are also selling at more attractive valuations than their smaller peers. "A decade is an unusually long time for large caps to sit in the doghouse, and I don't think they'll sit there much longer," he writes in his latest Forbes column. Dreman is particularly high on large value plays in volatile industries like materials, industrial supplies, oil, and banking. "Remember, many investors are still looking through the rearview mirror at 2008, remembering how badly these industries were beaten up when the market crashed," he says. "As the economy continues to revive, they should be among the prime beneficiaries."
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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