Europe fears overblown?
Several of the market gurus I follow are seeing Europe's problems as a buying opportunity -- not a reason to panic
It was another anxiety-provoking week for stock investors, as Europe's debt woes continued to send the U.S. markets on a volatile, and generally downward, path. But according to many of the market's top strategists, the Euro Zone's problems aren't a reason to shun stocks.
Kenneth Fisher, for example, says the Europe fears are overblown. While the market tumbled Friday amid news that Fitch downgraded Spain's credit rating, Fisher says investors shouldn't give much credence to rating agencies -- whose failings to properly evaluate debt were a big part of how the U.S. credit crisis developed. “It’s simply astounding, after all we’ve seen in recent decades, that anyone pays attention to credit ratings put out by the officially sanctioned rating agencies,” Fisher writes in his latest Forbes column. “Moody’s and Standard & Poor’s compound investors’ worst sins, including the tendency to make a mountain out of a molehill.”
Fisher says investors shouldn’t give in to fear. “Panics pass. This one will, too,” he writes. “Stop thinking about short-term market jitters and more about long-term investing.”
He's not alone in his bullishness.
Bloomberg reported Thursday that two other top money managers are seeing big opportunities. “I think [stocks] are going to stabilize in this general area, and then we’re going to have a significant move to the upside,” hedge fund guru Barton Biggs said. “The market is very, very oversold, and I think we’re going to have a big pop to the upside some time in the next couple of days. I wouldn’t be surprised to see us go to a new recovery high, just to make everybody squirm.” Biggs said the Europe concerns are serious, but added that "I just don’t think that the worst is going to happen.”
Mark Mobius of Templeton Asset Management says, meanwhile, that the downdraft in emerging markets is just a correction -- not an end to the bull run. “Despite the fact that a lot of people think that we are entering into a bear market, we don’t believe so,” Mobius told Bloomberg. “When the time comes, emerging markets will recover faster and in a big way.” He's been buying up BRIC nation stocks -- those from Brazil, Russia, India, and China -- Bloomberg reports.
One more strategist who sounds optimistic: columnist and money manager Doug Kass, who came pretty close to calling the exact turnaround point for the market back in March 2009. Kass this week told CNBC that the recent market turbulence is distracting investors from good news about the U.S. economy. He also said that the rise of high-frequency trading has “so screwed up the market that you can throw out all technicals”. He notes that the market is offering a strong 8% earnings yield -- far above Treasury yields -- a good sign. Kass expects the S&P 500 to trade within a range of about 1080 to 1180 through the summer.
Others, however, are more cautious -- some much more so. Top fund manager John Hussman tells Bloomberg that he sees some real danger signs in the market right now. He says there has been “strong deterioration” in market internals, including market breadth, and that such deterioration has historically been followed by market declines over the next 12 weeks and the next 12 months.
Whitney Tilson, one of the few who saw the housing crash coming, is again very leery of the housing market. He told CNBC that the housing market now stands “on a precipice”, and that it's unclear which way it will tip. Affordability and mortgage rates are good right now, he says, but millions of people are underwater on their mortgages, which could lead to millions of potential foreclosures that would add huge amounts of inventory to the market. Regardless of which way the housing market tips, however, Tilson thinks homebuilders are a good short.
Finally, Donald Yacktman, who has one of the best fund manager track records of the past decade, is also cautious. Barron's reports that Yacktman has built big defensive positions in stalwart-type firms like PepsiCo (PEP) and Coca-Cola (KO). According to Barron’s, he “can’t recall another time when such dominant players with reliable earnings growth were selling for less than their average prices.”
Yacktman isn’t expecting another big plunge in the coming months, Barron's says, but he also wouldn't be shocked if one did occur. “If it goes down, we are going to shoot the lights out again,” says Yacktman, who did a good deal of bargain shopping when the market plunged in 2008/2009.
Disclosure: I'm long KO and PEP.
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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Consumers are very status conscious in Asia, Africa and other emerging-market areas. This is especially true in China.
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