Wells Capital Management Chief Investment Strategist James Paulsen says corporate leaders are now feeling more confident in the economy, and he expects they’ll be acting more aggressively in putting cash to work. Paulsen tells CNBC that he thinks the biggest accelerant of growth will now be a “slow but steady rise in both consumer and business confidence, leading to more aggressive economic behavior”.
In an article in London’s Telegraph, Kenneth Fisher offers an interesting take on large-cap stocks.
“I think the time of small-cap dominance is over,” Fisher said. “There will be a switch to large caps — although it won’t be a fast one, more like a dimmer switch.”
Large-cap stocks have underperformed smaller stocks for some time. But Fisher looks at “large cap” in a different context than most people, who view large caps as stocks with market capitalizations greater than $10 billion or so. “If you invested in a big cap, nine years out of 10 they will beat the market. But what you have to remember is what I mean by a ‘big’ stock is really a megacap,” he said. ”For a stock to be considered ‘big’, it must surely be larger than average stock. But the ‘average’ size of a US stock is $75 billion — because the top 20 stocks are so large they skew the average.”
An economist who foresaw the Asian crisis back of 1998, the Internet bubble of the early 2000s, and the recent housing bubble has a very upbeat view on the U.S. economy for 2011.
Author and University of Chicago Professor Emeritus Robert Z. Aliber is predicting that the U.S. economy will grow between 4.5% and 5% this year; the stock stock market will gain 15%; unemployment will fall into the 7% range; and threats like state and municipal debt crises and remaining toxic debt from the housing crisis will be dealt with, according to MarketWatch’s Al Lewis.
“We will have restored our confidence in the resiliency of the American economy,” Aliber says. He adds that “some people are still hurting. But it’s almost as if there are two economies: The cruise lines are full. The airplanes are more or less full. … The auto market is picking up. … The restaurant industry is picking up.”
In his year-end letter, Ron Muhlenkamp says that, after being cautious for most of 2010, he gained confidence in the U.S. economy toward the end of the year and is now “near fully invested”.
In the U.S., Muhlenkamp says the extension of the Bush-era tax cuts should help increase employment, but he also says state and municipal budget strains are a concern. Abroad, he says the European debt crisis isn’t over, and that China is the “swing member” of the international community; he says China faces the tricky task of removing the extensive stimulus it provided after the financial crisis.
But overall, Muhlenkamp is bullish. “The main bullish argument, as always, is based on 2-3 billion people in the world who go to work every day in order to feed their families,” he says. “In doing so, they build personal and family assets and, coincidentally, business and national assets. As investors, we try to align ourselves with these efforts by investing in companies that aid people in the wealth-producing process and, thereby, benefit from it.” Right now, he says he’s finding the best values in “large, international companies (usually U.S. based) with rock-solid balance sheets and healthy cash flow”.
Yale economist Robert Shiller says he thinks U.S. and European stocks are overvalued. “I would say the market is overpriced based on fundamentals,” Shiller tells CNBC. “The Dow [reaching] 12,000 doesn’t stimulate me to excitement.” Shiller also says the housing market is “inherently psychological”, and says he thinks we may see a renewed downtrend in home prices.
In Canada’s Globe and Mail, David Parkinson takes a look this week at Validea Canada’s guru-inspired investment strategies.
“One of the problems with pursuing a specific investing strategy — even one supported by the proven successes of one of the most revered investing minds on the Street — is that it rarely works best in all circumstances,” Parkinson writes. “Depending on the market conditions, it may be more profitable to be a growth investor, in others a value investor. In some cases, it might work to be a momentum investor, in others a contrarian investor. And stocks that fit well with one successful strategy might be a poor fit in another.”
“But what if you could hedge your strategy bets — play multiple strategies at once?” Parkinson adds. “That way, even if one approach to the market is stumbling, your portfolio might still have strength in an alternative approach. The folks at Validea Canada have an online tool that aims to do just that.”
Parkinson keys in on the 10 stocks in the Canadian market that get interest from four or more of Validea’s Guru Strategies, which include models based on the approaches of such legendary investors as Benjamin Graham, Warren Buffett, and Peter Lynch.
In a follow-up article, he looks at Validea’s “Top 5 Gurus Portfolio”, a 10-stock portfolio that uses five top-performing guru-inspired strategies to pick two stocks each.
GMO’s Jeremy Grantham has released his fourth-quarter 2010 letter to shareholders, and Part I of his always-intriguing commentary is filled with short-term bullishness and long-term bearishness.
“Be prepared for a strong market and continued outperformance of everything risky,” Grantham writes, citing stimulative Federal Reserve policy and the fact that we’re in the third year of the Presidential Cycle, which traditionally bodes very well for stocks. “But be aware that you are living on borrowed time as a bull; on our data, the market is worth about 910 on the S&P 500, substantially less than current levels, and most risky components are even more overpriced.”
Two big long-term threats Grantham sees are commodity price surges due to resource shortages, and global warming, which he says is already causing extreme weather shifts that are contributing to those resource shortages. “Russian heat affects wheat prices and Australian ﬂoods interfere with both mining and crops,” he writes. “Weather-induced disappointment in crop yield seems to be becoming commonplace. This pattern of weather extremes is exactly what is predicted by the scientiﬁc establishment. Snow on Capitol Hill, although cannon fodder for some truly dopey and ill-informed Congressmen, is also perfectly compatible. Weather instability will always be the most immediately obvious side effect of global warming.”