The housing market, which was at the heart of the 2008 financial and stock market meltdowns, is improving but has some big hurdles ahead, says Yale economist Robert Shiller. He tells Bloomberg that “the big cloud on the horizon is the withdrawal of government support”. Shiller says where the housing market goes after government support is withdrawn will depend largely on “animal spirits”, and he puts the probability of a double-dip in housing at “50/50″.
While some have been concerned about the low volume and lessened volatility in the market of late, Charles Schwab’s Liz Ann Sonders remains upbeat on stocks.
“The grinding-higher [market] action that has resulted is certainly no disappointment,” Sonders says in her latest market commentary, written with Brad Sorensen. “The market has moved through important resistance levels while setting new 52-week highs.” She says a near-term pullback is a possibility given recent increases in sentiment, but she adds that mild corrections are “a healthy part of any cyclical bull market”, and that she is “relatively optimistic on near-term prospects of the market continuing to grind higher.”
Sonders and Sorensen also provide historical data showing that the market can move higher during sustained periods of low volatility.
Each week, we take a look at which stocks John Reese’s Validea.com Guru Strategy computer models have newfound interest in, and which they have soured on. Here’s a look at some of the stocks John’s strategies have upgraded or downgraded today.
In an interview with Barron’s, top fund manager Bruce Berkowitz says that he’s high on some of the firms most beaten down by the financial crisis — including Citigroup and AIG — and that we’re reaching a point where finding “really great investments” is going to become more difficult.
“There were some obvious and wonderful places to invest for those who had cash,” Berkowitz says of the environment around the time of the financial crisis. “Today, as always, we continue to hold lots of cash, and we like very much what we own. But it is going to be more difficult now to find really great investments.” Still, he says his fund has been busy “laying down the last set of investments that should see us through reasonably well for at least the remainder of this year.”
Berkowitz says he thinks financials are through the worst of their loan problems, and are now reaping the benefits of good loans they’ve made more recently.
David Ellison, the fund manager and Peter Lynch disciple who sidestepped much of the financial sector meltdown and then turned bullish on the sector shortly before the March 2009 low, is keying on stable, deposit-taking banks.
“I am looking for companies that have stable deposit franchises,” Ellison, whose funds focus on the financial sector, tells Financial Planning magazine. “They have the ability to fund themselves cheaply and with stability.” He adds, “Of course we want to pay as little as possible for a stock. We just came through a period where these stocks were trading at two times book.” Ellison has no interest in complex financial-services “supermarkets” that feature proprietary trading desks and hedge funds, Financial Planning reports.
Ellison also says that his strategy involves being patient in order to get the stocks he wants at the right price. “It’s all about playing the cycles,” he says. “Those cycles last three or four years.”
Blackrock Chief Equity Strategist Bob Doll thinks job growth is “right around the corner,” and says he doesn’t think we’ll see a double-dip recession. Doll tells CNBC that while problems exist, the positives outweigh the negatives for the stock market, and that self-sustaining mechanisms for growth are developing in the economy. He also talks about sectors he’s high on, and those that he thinks have gotten ahead of themselves.
Tom Forester, whose Forester Value fund was the lone long-only mutual fund to make money in 2008, says he thinks the market has gotten pricey and sees more trouble on the horizon for banks.
“The markets are trading at about 20 times earnings. Historically, the average is about 14. So things are looking pretty rich right now,” Forester tells AOL’s Daily Finance. “I don’t expect things to fall off a cliff again like in ’07. But I do expect things to trend down,” he adds, though it’s not clear whether he’s talking about the market, economy, or both.
Forester remains very cautious on banks. He has underweighted them in his portfolio because of trouble he sees for the housing market, which he thinks will lead to more write-offs. “Right now, people are saying, ‘It’s all done, don’t worry about it, they’re minting money right now, banks are the place to be,’” Forester said. “And I just don’t agree with that.”
John Hussman is continuing to maintain a defensive position on stocks, saying that two dangers — an overbought, overvalued market and the coming to roost of a second wave of credit losses — mean investors should be cautious.
“It is important to note that our current defensive position is driven by the present combination of overvalued, overbought, overbullish conditions, coupled with upward yield pressures, and is independent of my larger concerns about the potential for a second wave of credit strains,” Hussman writes in his latest market commentary. “So there are two distinct sets of concerns here, one that would exist even in the absence of credit concerns, and the other that directly involves those concerns.”
Hussman, whose funds have excellent long-term track records, has been anticipating a second round of credit problems for a while. He says we are now reaching a point when those problems could be appearing in economic data in the form of spikes in delinquencies, large increases in loan loss provisions, or a rise in foreclosures. First-quarter earnings reports will also offer the first look at how corporations are bringing onto their balance sheets entities that previously could be kept hidden, he says.
As we enter the second year of the bull market that began last March, Kenneth Fisher remains high on stocks.
“One year into the current bull market I like what I see,” Fisher writes in his latest Forbes column. “Globally improving fundamentals plus strong societal skepticism. Snarky, cranky sentiment and better fundamentals are the classic ingredients of the second phase of bull markets.”
Fisher says economic data continues to show improvement and be better than expected, though many are dismissing that data. “In part this is because the fastest recoveries from the recession are happening in the 25% of global GDP found in emerging markets countries,” he says. “Maybe it’s unnerving that China and Brazil are leading us. Americans are way too U.S.-focused.”
Top fund manager Donald Yacktman is continuing to focus on high-quality stocks, instead of the lower-quality issues that led the market’s big rally last year. “It’s been a shift away from things that have more economic sensitivity toward things that are just more predictable,” Yacktman says, adding that his firm is “loaded” with high-quality stocks like Procter & Gamble and PepsiCo. Looking at the stock market like a bond market, Yacktman says that a year ago, spreads between high- and low-quality stocks were such that taking more risk on lower-quality issues was merited. But those spreads have now narrowed. “I think one needs to be very patient and in effect have a lot of high-quality businesses in their portfolio,” he says.