← Autodidact Archive · Original Dissent · seq
Thread ID: 5332 | Posts: 4 | Started: 2003-03-04
2003-03-04 03:52 | User Profile
Posted on Sun, Mar. 02, 2003
HARRIET JOHNSON BRACKEY/MONEY MATTERS
Top manager predicts a depression
Three years ago, when Michael O'Higgins was entirely out of stocks and into zero-coupon Treasury bonds, when he was predicting that stocks would lose half their worth, I didn't believe him.If you listen to O'Higgins now, you won't want to believe himeither: he's predicting another depression. However, I think you should pay close attention, because it's possible he's on target.
Again.O'Higgins, for whom the term contrarian is much too mild, has a record of being right when most of us are headed in the wrong direction. And a record of making money while we're losing it. Since our last conversation in March of 2000, zero-coupon treasuries are up 43.5 percent. The S&P 500 Index is down 41 percent. He said long-term Treasury bond yields would drop from 6.15 percent then to 4.6 percent. They are now paying about 4.7 percent.O'Higgins manages $200 million at his boutique investment firm in Miami Beach that caters to clients with assets of at least $1 million. He's been a top money manager for more than 20 years and has written best-selling investment books, Beating the Dow and Beating the Dow with Bonds. He's best known for his Dogs of the Dow theory, which worked well for quite a while when the market was still going up.
[url=http://www.miami.com/mld/miamiherald/business/5290493.htm]http://www.miami.com/mld/miamiherald/busin...ess/5290493.htm[/url]
2003-03-04 13:53 | User Profile
Here's a cheep laff: Larry Kudlow's prescription for canny investors. This, btw, is the same Larry Kudlow who bankrupted thousands by directing them to "go long!" directly after 9/11....just before the market plummeted down 2500 points! Bye bye,nest egg. Now his new 'expert advice' is: bye bye, life savings...
[url=http://www.townhall.com/columnists/larrykudlow/lk20030304.shtml]http://www.townhall.com/columnists/larryku...k20030304.shtml[/url]
Larry Kudlow/ March 4, 2003
[font=Geneva][SIZE=3]Buy, buy, buy[/font][/SIZE]
The fog of war has enshrouded everyone and everything. But we must soldier ahead. And that means investors, too.
The economy looks good, despite the gloomy forecasts of those who can't see the positive indicators through the fog of pending military action against Iraq. In fact, with the economy so promising and share prices so inviting today, we might be looking at one of the best windows for investing in a very long time.
The latest report on gross domestic product was twice as strong as expected. When you take out the reverse algebra of trade-balance accounting, domestic GDP is up nearly 3 percent. Capital-goods investments by businesses have increased three straight quarters at an average 9 percent gain. Inflation is less than 1.5 percent, a miniscule amount. And both the money supply and commodities -- including aluminum, copper, steel, tin and zinc -- are rising, meaning that some of our cash-strapped businesses are getting back in the money.
Fourth-quarter profits were up 14 percent. Durable goods retailers (automobiles, trucks and office/business equipment) were up 10 percent, the health-care sector was up 18 percent, telecoms were up 16 percent, and airlines were up 39 percent. There is no way we are heading into a double-dip recession.
Is there a temporary oil shock? Yes. But the oil futures curve is inverted, meaning prices are summiting the hill and will soon be headed back down. Oil is now $36.50 a barrel. That price will be $33 in June, $30 in September, $28.60 in December, and all the way down to $23 and change in 2005.
Here's another point on oil: Yes, the recent rise in oil and gasoline and home heating-fuel prices may pinch consumers temporarily. But in constant dollars, today's $36 a barrel oil price would equate to $50 a barrel on the eve of the Persian Gulf War and over $90 in 1980. The current oil shock is actually less shocking when put in perspective.
We learned during the first Gulf War that Wall Street can quickly shake off the fog of uncertainty and turn in an impressive rally. Not only will that rally take place when Saddam and his henchmen are removed from power, but it could be even more impressive than the market spike 12 years ago.
Economic conditions are a lot better today than they were on the eve of the first Gulf War. Real GDP was 1.8 percent then, now it is 2.4 percent. Inflation was 4.3 percent, now it is 1.7 percent. The 10-year Treasury note was 8.5 percent, now it is below 4 percent. And the banking system is much healthier today than it was in 1991.
On the economic-policy front, Washington is currently much more stimulative than it was over a decade ago. Back then, the Federal Reserve was tight with the cash. Now, it is loose. Back then, Papa Bush was suckered into a tax hike. Now, Bush the Younger is cutting taxes everywhere he can.
As the booming '90s came to a screeching halt, we learned that investors cannot always bank on the promise of capital gains -- or shareholder returns based only on rising equity prices. But they can bank on a dividend check from those companies that pay them. The same holds for a corporate-bond coupon check. If stock prices rise and capital gains occur for investors, then all the better. But if the investor dividend tax is abolished in Washington, shareholders will be rewarded with a steady flow of real money from corporate America.
This is why investors should focus on cash-yield plays. It's almost a Dogs of the Dow strategy, centering on dividend yields and corporate-bond coupon yields -- not, however, on Treasury yields. There's been a mini bubble in Treasury prices, and they are way overvalued today.
Last year, the S&P 500 had an earnings per share of $45.80. This year, with 3 percent economic growth and 12 percent corporate profits, earnings per share could be $51.90, a 13 percent gain. With the humongous stock market correction of the past three years, the S&P 500 is now back to its long-run trendline growth of 7 percent per annum since 1969.
Cyclical stocks, big-cap techs, commodities, industrials and consumer discretionary stocks are all ripe for the picking today. And so are corporate bonds with juicy coupons, especially non-callable bonds and even high-yield junk bonds. These are all good plays for investors.
And here's one more comparison with 1991 that should get investors moving: Our high-tech, precision-bomb military capabilities are gargantuanly better today than they were for the first Gulf War. Saddam is history. America knows it, Bush knows it. Saddam may not know it, but he will soon learn it. Investors must believe it, too.
There may be more than a two-week time horizon for investors to get active again. Is it time to buy? Yes. Buy, buy, buy.
é2003
2003-03-04 14:08 | User Profile
Kudlow is an interesting guy. He recently converted to Catholicism and particulalry enjoys the sacrament of the Eucharist. He embraces with particular relish the Church's view that when Christ said "this is my body" he meant it literally.
I wouldn't be too anxious put throw Larry in leg irons for being unable to predict the future.
2003-03-04 14:18 | User Profile
**I wouldn't be too anxious put throw Larry in leg irons for being unable to predict the future. **
You might, though, if you followed his advice. :lol: