Monthly Archives: April 2010

Sonders: Recovery Is More than “Sugar High”

Charles Schwab’s Liz Ann Sonders — who made what appear to have been very accurate calls on the start and end of the recent recession — says the U.S. economic recovery is now entering self-sustaining mode.

“It’s more than just a ‘sugar high’,” Sonders tells Harlan Levy in an interview on Seeking Alpha. “This is a legitimate recovery, in many ways as a result of a lot of the traditional forces that kick in in recoveries. You get inventory rebuilding, which pushes up industrial production, which pushes up the need to hire. We’ve got very strong exports. We’ve got businesses in very healthy shape right now in terms of their balance sheets.”

Sonders also says that businesses were so hurt coming out of the 2001 recession that they didn’t do much capital spending, which means there’s a decade’s worth of pent-up demand on that front. Consumption has also started to come around, and she says we’re seeing an “unquestionable” V-shaped recovery in the manufacturing sector. “So a lot of what you tend to see happen as the economy moves from recession into recovery and then eventually from recovery into expansion is happening this time, too,” she says.

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Heebner: Euro Debt Woes Won’t Stop U.S. Recovery

Fund manager Ken Heebner says he thinks the U.S. economy will continue to recover, regardless of what happens with Europe’s debt woes.

“I think the American economy is not dependent on what happens in Europe,” Heebner tells CNBC. “The uptrend in the American economy, I think, is strong. I think the consumer has shifted decisively in March, and I think consumer spending is going to surprise on the upside meaningfully. … I think we’re going to see rising demand against the background of abnormally low inventories creating an accelerated rise in industrial production.”

Heebner thinks the situation in Europe could cause short-term issues for the markets, but thinks that in the long term, the Europe troubles are a positive for the U.S. The U.S. needs as much time as possible to sort through its own issues, and problems for Europe will help allow it that time.

Heebner also talks about why he’s high on Ford Motor Co., and Blackrock’s Bob Doll offers his take on the economy and markets in the interview.

Siegel Sees 10%-15% More for Rally by Year-End

Author and Wharton professor Jeremy Siegel continues to be bullish on the market, saying he sees another 10% to 15% in gains for stocks by year-end. Siegel says that “extraordinarily strong” earnings and worldwide economic growth are behind his short- and medium-term bullish stance.

Fisher Sees Bullish Signs

In his latest Forbes column, Ken Fisher reiterates his bullish stance on stocks, and offers several reasons why he’s optimistic.

Among Fisher’s bullish points:

  • “The GDP-weighted global yield curve (spread between long-term and short-term government interest rates) is steeper than it has been since the 1960s.” That, he says, means increased future lending for banks, and is an indicator that “has historically been a great market-timing tool.”
  • “The spread between ten-year Treasury yields and the average cost of credit default swaps has narrowed to zero.” Fisher says that’s a sign that the economy “is keyed to expansion and credit demand more than recession and bankruptcy risk.”
  • Junk bond offerings were a record $37.8 billion in March. “Low-quality midsize firms couldn’t borrow a year ago,” Fisher says. “Now they can. Small businesses will be next.”

To see Fisher’s other reasons for optimism, and several “underappreciated” stocks he’s keying on, click here.

Markman Says Rally Doubters Are Wrong

MarketWatch columnist and money manager Jon Markman says that while many investors don’t believe it, the rally still has plenty of room to run — and that corporations will keep it rolling even if individual investors don’t. Markman points to the government’s massive stimulus plan, record low interest rates, and the large amounts of money being pumped into corporate bonds as reasons for his optimism. “If the public doesn’t get on board with this bull market, the companies are going to do it themselves, both by buying other companies … and buying back their own stock,” he says. He thinks the S&P 500 could reach 3,000 by the end of this decade, but adds that it won’t be a smooth ride — there are enough economic troubles that the index could fall to 800 or so before turning upward.

Top Fund Managers Look to Large Caps

Jeremy Grantham isn’t the only successful investor who’s finding big values in big stocks.

Thomas Perkins and Donald Yacktman are among the investors with strong long-term track records now finding good buys in large-cap stocks, BusinessWeek reports. Perkins, whose Perkins Investment Management Mid-Cap Value fund has outperformed its peers by more than 4 percentage points over the past decade, says that large caps “have gotten so cheap that they should outperform for the next several years”. BusinessWeek says his fund is “almost at its limit for big-company shares”.

Yacktman (whose fund, BusinessWeek notes, has beaten all but 13 of more than 3,000 diversified U.S. funds over the past decade, according to Morningstar) is also high on bigger plays. Some of his top recent holdings have included Coca-Cola and Pfizer. Like Grantham, he’s also high on high-quality vs. “junk” stocks. He told BusinessWeek that investors “are not being paid to take more risk” with lower-quality stocks right now.

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Grantham: Stocks Overpriced, but (Unfortunately) Likely to Rise

In his latest quarterly letter, GMO’s Jeremy Grantham says stocks are overvalued, but likely to continue rising — and rising to dangerous “bubble” levels if the economic recovery is a slow one.

“Even though I guessed last April that we would have a quick rally to 1100, this looks quite likely to be far more,” Grantham writes, saying that the government’s bailouts of failing firms, huge deficit-spending, and low interest rate policy have encouraged large amounts of speculation and risk-taking that has driven stock prices higher. “If the economic recovery is slow and if unemployment drops slowly, then Bernanke will certainly keep rates very low, as he has promised in as clear a way as language permits,” Grantham predicts. “In that case, stocks and general speculation will very probably rise from levels that are already overpriced.”

A stronger recovery would mean rates would rise more quickly, causing some short-term hits to the markets, but “probably exercis[ing] no really damaging effect on the economy”, Grantham says.

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