strong>March 8, 2009
Even for Market Veterans, It’s Uncharted Territory
By JEFF SOMMER NYT
AFTER the steepest decline since the Great Depression, unalloyed optimism among veteran stock market hands is hard to find.
Byron Wien, chief investment strategist at Pequot Capital Management, says he is an optimist. Yet he advises small investors to buy gold and corporate bonds, not equities, which, he said, may be too risky right now.
Barton M. Biggs, managing partner at Traxis Partners, a hedge fund, places himself in the optimists’ camp, too. Yet he advises well-to-do investors to arm themselves — with shotguns, if need be — against the possibility of a deepening downturn and accompanying “social unrest.” ......
What should investors do under these circumstances? Buy high-quality corporate bonds, which fell sharply over the last year or so, and which are likely to rise in a market recovery. That makes sense to Dr. Kaufman, as well as Messrs. Wien, Biggs and Lynch. Bonds have the merit of providing steady income, at rates that are now very high; they tend to be less volatile than stocks; and they have a higher legal claim on a company’s assets.
FOR investors with a truly long-term view, probably 20 years or more, the market will be worthwhile, they said, because stocks should outperform other asset classes. To one degree or another, though, they said investors should be extremely cautious over the short term.
Mr. Biggs said he thinks it’s “50-50” as to whether the economy begins to recover over the next year or “whether we are going into a depression and a deflation,” which could conceivably be as painful as the 1930s.
“If we’re going into the 1930s,” he said, “it’ll be survivalism, and we’ll have very substantial social unrest.”
Attention should be paid of course. After all this is major "expert" with decades of experience:
Buy American: Barton Biggs increasing holdings of U.S. equities.
Traxis Partners co-founder says market is close to the bottom; shares ‘very, very cheap’
February 11, 2008 12:47 PM ET
Barton Biggs, co-founder of hedge fund Traxis Partners, said he's “gradually increasing” his holdings of U.S. equities because he doesn't expect a recession and shares are “very, very cheap.”
Mr. Biggs, the former global investment strategist for Morgan Stanley, said in a Bloomberg Television interview that the market is “at or very close to an important bottom'' and may be led higher by banks and brokerages when a rally occurs. Some financial companies may advance 20% to 25% over periods of two to three weeks, said Biggs, who helps manage $1.5 billion in Greenwich, Connecticut. The Standard & Poor's 500 Index fell 6.1% in January, its biggest monthly decline since September 2002 and its worst start to a year since 1990. During the month the index fell as much as 16% from its Oct. 9 record.
Financial companies in the index fell almost 21% in 2007, the worst performance among 10 industry groups and their biggest drop since 1990. They trade for 14.8 times profits, compared with an average price-earnings ratio of 15.5 this decade, according to data compiled by Bloomberg.
The S&P 500 trades for 18.1 times earnings, 31% below its monthly average this decade, according to data compiled by Bloomberg.
Mr. Biggs correctly forecast U.S. equities would rebound from declines in March and August last year. On March 16, following a 5% decline by the S&P 500 from its Feb. 20 peak, he said stocks were approaching a bottom and predicted a gain of as much as 15% for the index in 2007.
The S&P 500 rose as much as 12% from that level before retreating to end the year with a 3.5% gain.
On Aug. 16, after a 9% decline by the index, Biggs said it was bottoming and predicted a rebound. The benchmark rose almost 11% over the next seven weeks
Feb 11, 2008 DJIA: 12,182 S+P 500 1321 IYF (financials etf)86.71
March 5, 2009 DJIA 6626 S+P 50 683.38 IYF 24.10