Shiller on Housing and Regional Bubbles

Housing market guru Robert Shiller says it’s possible that the housing market has bottomed, but that he’s not confident it has. Shiller tells FOX Business Network that there is some good momentum forming in housing prices, but that part of the recent bounce has been seasonal. Shiller says that it’s possible that bubbles are forming in some areas of the U.S. housing market, citing Phoenix and San Francisco.

 

Is Glass-Steagall The Answer? Maybe Not, Says Zweig

While many have been clamoring for the reinstitution of the Glass-Steagall Act as a way to address some of the financial sector’s problems, Jason Zweig is skeptical.

In his Intelligent Investor column for The Wall Street Journal, Zweig says that when it was in effect, Glass-Steagall wasn’t the powerhouse that many are portraying it to be. “For all of the rhapsodizing about the halcyon days of Glass-Steagall, the statute was far weaker than its advocates care to admit,” he writes. “That law did help stamp out much of the self-dealing and skulduggery that had corrupted banking in the 1920s. But it was shaped by special interests from the start, riddled with loopholes and powerless to stop banks from committing many financial abuses. By the time Congress repealed it in 1999 … the much-vaunted law had been an empty husk for decades.”

As for the bank break-ups that Glass-Steagall advocates seek, Zweig says there are significant questions about whether they would unlock value for investors. “Today’s giant banks are so convoluted that insiders themselves can be mistaken about what their complex assets are worth,” he says. “It isn’t realistic for outsiders to think they can do better.”

Zweig says that more than a Glass-Steagall reinstatement is needed. He says the real problem in the financial sector is that under the current setup, taxpayers are left on the hook for huge, failed risks by companies. One way to address that, he says: Decrease deposit insurance limits, he says, which would make consumers — and thus banks — more diligent about assessing risk.

“Even if, by some legislative miracle, banks are cleft in two, they will find infinitely crafty ways to get risks back onto their balance sheets,” Zweig concludes. “And the additional ‘capital buffers’ that regulators are demanding now are likely to make banks safer for society, but less lucrative for investors. Your capital already is at risk as a taxpayer. Why risk it as an investor, too?”

 

Guru Strategy Ratings: JPM, VOD Rising; MSFT, JNJ Falling

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.

Siegel Says Housing Will Boost Second-Half GDP

Wharton Professor and author Jeremy Siegel says a rebound in the housing market will help push GDP growth near 3% in the second half of 2012.

“Housing is one of the few bright spots, but a very important bright spot in the economy,” Siegel told Bloomberg TV (hat tip to Business Insider). “When you talk about all consumer spending, and even in the investment category almost 25-30 percent is related to housing/furniture purchases, redecoration, renovation — the feeling of consumers that they’ve got a little bit of equity in their home. We’ve had some stabilization of prices … Case-Shiller has shown house prices creeping up; that is so important for psychology and also for spending.”

Siegel says that will increase consumer and business sentiment. He notes that housing starts need to be around 1.5 million per month, and fell to 475,000 during the housing crisis. Now they’re back up to 700,000. “We have a tremendous upside in that housing market,” Siegel said. “And I think that that is going to be the market that’s going to stabilize the sentiment, improve the sentiment, and drive us to GDP in the second half of the year that’s closer to 3 percent than … to [the] 1.5 and 2 percent [it has been] in the first half of this year.”

 

 

 

Fisher: Look to Large-Cap Growth

Top investor Kenneth Fisher says that the bull market has a ways to go — and that large-cap growth stocks will be the place to be during the rest of the bull run.

In a column for Interactive Investor, Fisher notes that in the early stages of bull markets, small-cap value picks usually lead the way. They are more economically sensitive and get pounded when fears crescendo at the end of bear markets, and then bounce back when fears subside and the bulls start running, he says. Then things change.

“Later, after the bull market’s early phases, a new phase starts, where people are less myopic,” Fisher writes. “They aren’t quite so fearful and start thinking a bit longer term. Those small, economically sensitive cyclical firms don’t have long-term growth prospects, no long-term vision. But big, growth-oriented firms do. Quality and growth. They have vision, deep product pipelines, quality management. That’s what investors want then — so they move away from small value to the polar opposite — and large growth takes over leadership.”

Fisher says the switch doesn’t happen overnight. “But when it does, it lasts a long time,” he says. “Large cap growth started beating small value fairly regularly early in 2012 — it’s early still. What’s more, as bull markets end, breadth typically falls to less than a third of the broad market (measured using the longer history of US stocks — but it’s the same globally). We aren’t even close yet — there’s room for this bull to run.”

Fisher says to focus on high-quality firms that have market capitalizations around $100 billion or more. “There aren’t many stocks there to pick from; but do it,” he says. “The longer the bull market runs, the bigger you should go.”

 

 

Buffett’s 50-Year-Old Words Still Ring True

While many investors think uncertainty has risen to unprecedented levels, changing the way they should invest, they need only look at some of Warren Buffett’s earliest letters to investors to see that they may be wrong, writes MarketWatch’s Jonathan Burton.

“I think you can be quite sure that over the next ten years there are going to be a few years when the general market is plus 20% or 25%, a few when it is minus on the same order, and a majority when it is in between. I haven’t any notion as to the sequence in which these will occur, nor do I think it is of any great importance for the long-term investor,” Buffett wrote in a 1962 letter to investors, Burton notes, adding, “Half a century on, Buffett’s advice to ignore market gyrations still resonates. Yet many investors have trouble looking ahead 10 days, let alone 10 years. Of course, investors nowadays have justifiable fears about their money and who’s minding it. The safe return of capital is paramount, while the idea of losing your shirt in a bid for a meaningful return is paralyzing.”

But, Burton says, are things really so different now? “Risk aversion is hard-wired in human nature,” he writes. “A greedy market feeds on fear. Otherwise Buffett wouldn’t have needed to remind investors to keep a lengthy time horizon.” The year Buffett wrote that letter, he notes, investors had to deal with a raging Cold War with the USSR, the Cuban Missile Crisis, and a mid-year “flash crash” that knocked nearly 6% of the Dow Jones Industrial Average in one day.

Burton says Buffett’s message hasn’t changed over the past 50 years. “Then, as now, he stressed preserving capital in down markets, not chasing the market in runaway years, and focusing on long-term challenges and results,” Burton says. “But what many investors fail to grasp is that the long-term according to Buffett has never been about passive buy-and-hold; it’s buy-on-the-cheap, hold and monitor.”

Burton also discusses Buffett’s 1963 letter to investors, in which he laid out seven “Ground Rules” he wanted his partners to understand, which still ring true today. Among them:

  • “While I much prefer a five-year test, I feel three years is an absolute minimum for judging performance. It is a certainty that we will have years when the partnership performance is poorer, perhaps substantially so, than the Dow. If any three-year or longer period produces poor results, we all should start looking around for other places to put our money.”
  •  “I am not in the business of predicting general stock market or business fluctuations. If you think I can do this, or think it is essential to an investment program, you should not be in the partnership.”

 

Cohen: Think Long-Term

Goldman Sachs’ Abby Joseph Cohen says many investors have become too short-sighted, and says that “long-term, there are some very good values out there.” Cohen tells Bloomberg that a lot of the uncertainty out there is already priced into the market, and she thinks stocks are priced to return 8% to 10% per year for the longer term. She thinks the U.S. is still in a slow recovery and doesn’t see an economic “Armageddon” coming, and thus thinks that bond yields won’t get much lower. She also talks about the outlook for Corporate America.