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. Among the big-name movers: Burger King Holdings and Gannett Co.
Kenneth Fisher says the current correction is “the most textbook perfect” one he’s seen in 12 years, and says the second leg of a bull market is coming.
Fisher writes in his latest Forbes column that the last correction that was this textbook was the 1998 correction, which was fueled by the Asian contagion, the Russian ruble crisis and the Long-Term Capital Management hedge fund debacle. ” Like that one, this year’s minicrash had been pushed along by several scary stories that turned out to be nonsense but were nonetheless impossible to dispel,” Fisher writes, citing the PIIGS debt “hysteria” as a major example.
A double-dip recession is extremely rare — and “simply inconsistent” with the strong earnings data coming from Corporate America, Fisher adds. “Why do so many fear something that has pretty much never happened?” he asks. “Because we always do that early in a big bull market after a huge bear market. At some later point false fears are seen as that. At that point the rebound will resume.”
Click here to read the full column, which includes several of Fisher’s stock picks.
In his latest newsletter (click here for a PDF version), Research Affiliates’ Rob Arnott offers some interesting data on sovereign debt — data that indicates many investors are buying up bonds from the wrong countries.
While investors have been pouring into U.S. Treasuries, Arnott says the U.S. — and many other developed countries — aren’t the place to be when it comes to sovereign debt. “Bond investors are lenders,” he says. “Why should we deliberately choose to lend more to those who are most deeply in debt?”
Arnott measures a country’s ability to finance its debt by comparing its debt level to its “economic size”, which he calculates using four factors: capital (using gross domestic product); labor (using population); resources (using landmass as a proxy); and energy (using aggregate energy consumption). His findings: A small number of developed countries — including Australia, Poland, Slovakia, Canada, and Sweden — are in solid position when it comes to financing their debt. But other developed nations — including the U.S., though it’s a bit better off than other G-5 nations — aren’t all that different than the much-maligned so-called “PIIGS” (Portugal, Italy, Ireland, Greece, and Spain) when it comes to debt financing ability.
Charles Schwab Chief Investment Strategist Liz Ann Sonders continues to sound skeptical that the U.S. is entering the second leg of a “double-dip” recession.
“Although rhetoric surrounding a double-dip recession has increased throughout the summer, we remain relatively optimistic that economic growth will remain positive (albeit low) and that from a sentiment and valuation perspective, the stock market appears relatively attractive,” Sonders (along with Schwab’s Brad Sorensen and Michelle Gibley) writes in her latest market commentary on Schwab’s web site.
Sonders, Sorensen, and Gibley say that volatility will continue, but add that “alternatives to stocks are relatively unattractive,” with bond yields near all-time lows and interest rates on cash deposits at virtually zero.
Top fund manager David Herro, who has beaten the market handily over the long haul by going against the crowd, is now keying on a couple very unloved areas of the world: Europe and Japan.
While many investors are focused on hot-growth emerging market areas, Herro’s exposure to emerging markets is just 7%, SmartMoney reports. Herro tells the magazine that when a sector gets hot, “people like the story — and we avoid those.”
“These days, while Herro stops short of calling emerging markets a bubble, he thinks European and Japanese blue chips are a better way to tap growth abroad,” SmartMoney reports, adding that Herro has about 60% of his fund invested in Europe. He believes the declining Euro will end up helping the economy there.
The article also discusses some of Herro’s past successful contrarian moves, and offers a few of his current picks.
Morningstar domestic stock fund manager of the year Bruce Berkowitz is standing by his big bet on beaten-down financials, and recently explained why on Consuelo Mack’s WealthTrack. Berkowitz says that, having been incredibly scrutinized in recent years, financials now have strong balance sheets and excellent earnings power — and are trading at extremely cheap valuations. He says enough time has passed since the financial crisis that many bad loans are coming off the books, and banks have now had two years of making very good, profitable loans. Berkowitz also says he’s about two-thirds invested in equities, and has billions to spend should further stresses create new opportunities.
Dennis Stattman, whose BlackRock Global Allocation Fund has an excellent long-term track record, says big blue chips are offering lots of value.
Stattman tells Bloomberg that blue chip companies like Johnson & Johnson and Microsoft have global franchises, strong cash flows, and solid dividend yields these days. “We can’t find a stock among the 20 or 30 biggest U.S. companies that looks expensive,” Stattman says. He adds that because these big firms have global businesses, they can reap the benefits of faster-growing markets in Asia.
“Good management teams at these companies will put the earnings to work and increase the value of the businesses over time,” said Stattman, who is holding much less in Treasuries than his peers. “I would rather own good companies with managements that go to work every day than a piece of paper from the government of which there will be more next week and the week after,” he says. “Ten years from now we may look back and say, ‘Man, what were people thinking buying long-term bonds at those yields.’ ”
PIMCO founder Bill Gross thinks the government needs to get more involved in the housing market to help spur the economy, and he also thinks the U.S. needs to direct its stimulus funding differently. Gross discusses those issues and also gives his bond and stock market outlook on CNBC, saying that he’s currently high on Treasury Inflation-Protected Securities, as well as some non-agency and agency mortgages.
Prem Watsa, known as the “Canadian Warren Buffett”, appears to be making a big bet that the U.S. will be hit by an extended period of deflation.
According to The Wall Street Journal, Watsa’s firm, Fairfax Financial Holdings, “has spent nearly $200 million to buy derivative contracts wagering on a decline in the consumer-price index, an inflation indicator. … Fairfax paid $174 million in upfront fees to protect $22 billion of its investment portfolio against the possibility of deflation over the next decade. In exchange, Fairfax will receive a payment amounting to the drop in CPI below 2% — the level of inflation when Fairfax bought its contracts — multiplied by the $22 billion.”
The Journal says Fairfax thinks U.S. households are only in the beginning phases of reducing borrowing and increasing savings. It thinks that will lead to less consumer spending, higher unemployment and deflation.
Yale economist Robert Shiller says the poor home sale figures in July came in an “anomalous” month. Shiller tells Bloomberg that the scheduled expiration of the government’s homebuyer tax credit program led many buyers to rush to get their purchases made by the June 30 deadline, meaning that a July dropoff shouldn’t be a big surprise.