Buffett and others experts talk the economy, stocks and more

A summary of this week's thoughts and insights from respected investors and market strategists

By John Reese Mar 6, 2010 8:07AM

Warren Buffett wasn't the only top investment mind speaking out this past week. While Buffett's latest shareholder letter and appearance on CNBC dominated the investment news for a few days, a number of other strategists I keep an eye on offered their takes on where the economy and markets are headed. And, in general, their outlooks were positive -- cautious, but positive.


Some particularly interesting insight came from Liz Ann Sonders of Charles Schwab. In her latest market commentary, Sonders says two of the most-cited concerns about the recovery -- potential interest rate hikes and inflation -- are more hype than substance right now. While the Federal Reserve's increase of the Discount Rate is an example of how it has started winding down some of the short-term, emergency measures implemented during the financial crisis, the “paring back [of] broader-based support for the economy, a.k.a. rate hikes … is not imminent,” Sonders says. And while the monetary base has gone through the roof, the money multiplier has stayed on the floor, she says. Until it gets off the ground, inflation won't be an issue.


At some point, of course, the Fed will raise the key Federal Funds rate, and Sonders presents some interesting data showing how stocks and bonds fare leading up to and following rate hikes -- and it's a much better picture for stocks than it is for bonds. "This may be particularly relevant today given that individual investors are holding a near-record percentage of their assets in bonds or bond funds," she said.  


Another strategist providing interest historical data was James Paulsen of Wells Capital Management. In an interview with Bloomberg, Paulsen said that, while many are worried that continued high unemployment will mean bad times for stocks, history shows otherwise. Paulsen says that since 1948, when unemployment has been in the highest quartile, future stock returns have averaged 20% per annum. When unemployment figures have been in the other three quartiles, returns have averaged 7.3% per annum. "Stocks typically have enjoyed their highest or strongest returns from the highest rates of labor unemployment," he says. "It's just the opposite of what people fear."


Overall, Paulsen is maintaining his bullish stance, saying the overall trend of the market is “still clearly higher”.


Blackrock's Bob Doll, meanwhile, sounded fairly bullish in an interview with CNBC. "I think we’ll see continued mixed data, but leaning to the positive side,” Doll said of the economy. He sees signs that the global recovery is for real, though subpar compared to other recoveries. Doll also says he expects to see a rise in merger and acquisition activity in 2010. And he thinks 6% to 8% annual returns for the stock market are a “reasonable” target “over the next bunch of years”.


While Doll sees a subpar recovery, Lakshman Achuthan, managing director of the Economic Cycle Research Institute, says that this is the Rodney Dangerfield of recoveries -- it’s not getting any respect. He told Bloomberg that a number of pieces of data are showing that the recovery is stronger than many think, and that we won’t see a dip back into recession this year. But, longer term, he says that we’ve entered a period that will feature more frequent recessions -- which, he says, means buy-and-hold investing is “dead”.


Top fund manager Steven Romick seems to share Doll's opinion of the recovery, however. While he doesn't expect a double-dip recession, he told WealthTrack's Consuelo Mack that he thinks the recovery will be "anemic". He also says the market has become overvalued. “We think the stock market has run a little bit ahead of what the economic fundamentals are,” Romick said. “It’s a time for relative caution. Stocks just aren’t cheap.”


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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