Monthly Archives: July 2009

Barclays Strategist: Recovery Will Be Strong

While there is still quite of bit of pessimism and talk of gloom and doom swirling around the market and the economy, Barclays head of asset allocation Tim Bond is sounding positively sunny.

“History provides abundant evidence that the deeper the recession, the stronger the bounce. Even the recovery from the Great Depression conformed to this rule; real US GDP grew 10.8 per cent in 1934 and 8.9 per cent in 1935,” Bond writes in the Financial Times, citing several signs that we’re experiencing a “V” type recovery. “Over the rest of this year, the standard cyclical timing of a US economic turning point tells us pessimistic expectations are likely to collide with the economic reality of a strong recovery. The net result is almost inevitable, in the shape of an inexorable continuation of the equity rally.”

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Swensen on Why Individual Investors Will Always Be at a Disadvantage

WealthTrack has released some previously unaired parts of Consuelo Mack’s May interview with Yale Chief Investment Officer David Swensen. In the clip below, Swensen discusses a variety of topics, including why he thinks some corporate bonds are a good bet for professional investors but not a good bet for individuals; why individuals will always have trouble beating the market; and why his strategy in picking managers to invest Yale’s funds with is “all about the people”.

Where Do We Go from Here? Sonders, Yardeni & Others Weigh In

With the market continuing to surge, recently surveyed a number of top strategists to see just how much room they think stocks have to run, and found a good deal of optimism that was tempered by caution.

Among the strategists: Charles Schwab Chief Investment Strategist Liz Ann Sonders; Yardeni Research President Ed Yardeni; and Bespoke Investment Group Founder Paul Hickey. Here’s a sampling of what they had to say:

Sonders: “The train has been leaving the station for many indexes, and investors don’t want to be left on the cash platform,” Sonders said. She says investors are putting cash into just about anything, including higher-risk bond sectors, emerging markets, U.S. stocks, and commodities. “It’s been my strong view that a lot of what we’re seeing is ‘capitulation in’ vs. the ‘capitulation out’ that tends to occur as bear markets are ending,” she said. “I don’t think we’re finished with that process, but it won’t last forever.”

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Gross on GDP, the “New Normal”, and Why Watching Fees Is More Important than Ever

In his August Investment Outlook on PIMCO’s web site, bond guru Bill Gross talks about two key — and interrelated — issues: whether the government will be able to “reflate” the economy to match past longer-term GDP growth figures, and why avoiding the big fees most investment advisors and funds charge is so crucial today

Gross says nominal GDP growth has to grow close to 5% — its long-term average — for the economy’s long-term balance to remain intact. “Now, however, things have changed,” he says, “and it is apparent that there is massive overcapacity in the U.S. and indeed the global economy,” which has driven GDP down. “If allowed to continue -– and this is my critical point –- a portion of the U.S. production capacity and labor market will have to be permanently laid off. … Employment levels become unsustainable, retail shopping centers unserviceable, automobile production facilities unprofitable, and the economy itself heads towards a new normal where unemployment averages 8 instead of 5%, housing starts total 1.5 instead of 2 million, and domestic auto sales 12, instead of 16 million annual units.”

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Guru Rating Changes: Coach on the Rise, Intel Takes a Hit

Each week, I take a look at which stocks my Guru Strategy computer models have newfound interest in, and which they have soured on. Here’s a look at some of the stocks that my strategies have upgraded or downgraded today. Among the gainers is upscale retailer Coach, Inc., while the downgrades include chip-making giant Intel Corporation.

Validea Guru Strategy Upgrades/Downgrades -- July 29, 2009

Validea Guru Strategy Upgrades/Downgrades -- July 29, 2009

Top Strategists Talk “Buy-and-Hold”

The Financial Times recently interviewed several top strategists about the viability of “buy-and-hold” investing, and found that some are espousing more of a “buy-cheap-and-hold” approach.

“In a challenge to the received wisdom of holding stock market investments for 20 years or more, to smooth out short-term volatility, some suggest that measures of cheapness can be used to make buying decisions and enhance performance,” writes the Times‘ David Stevenson. Here’s a sampling of what some of these strategists had to say:

Robert Arnott, founder of Research Affiliates: “Basically, we have an industry which has developed a cult of equities — a notion that if you buy stocks you will win, if you’re patient,” he says. “The reality is something very different, and that is that stocks do win over the very long run… but they win over spans measured in generations, not measured in years. And they win in fits and starts.”

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Why Jeremy Grantham Is Bored with this Market

Just a few months after he said that equities were undervalued for the first time in two decades, Jeremy Grantham now says the broader market is again overvalued — though he sees substantial opportunities in certain areas of the market.

In the GMO chief’s second-quarter letter, Grantham says that a year ago, stocks were overpriced, and a quarter ago, they were underpriced. “Now they have all — or almost all — converged for a few unusual moments at fair value,” he says. “A year ago, it was very easy to know what to be: a risk avoider. It was not so easy reinvesting when terrified, but most of us knew that we should have been doing more. But today? It’s difficult to be inspired at fair value.”

Grantham says there is still “presumably at least a decent shot (say, 50/50) at [the S&P 500] rising over 1000 in the next two to three quarters.” But, he adds, the recent rally has been driven by stimulus and speculation, with low-priced, volatile stocks leading the way, and GMO’s estimate of S&P fair value is now below 900. “Given our view that we are in for seven lean years in which the market will be looking for an excuse to be cheap, we recommend taking some risk units off the table, including becoming underweight in equities — between 1000 and 1100 on the S&P, if it gets there this year. Around 880 you should continue to move slowly to fair value, twiddle your thumbs, and wait to see what happens. Boring! Otherwise, it is time to focus on the lesser issues: which types of equities are cheaper or more expensive than the market.”

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