4 Experts Give Their Opinions
Started May 18 2009 at 2:01PM (EST) (By dirtyharry)
Marc Faber: Capitalism Could Fail
Monday, May 18, 2009 11:41 AM
By: Dan Weil
Investment guru Marc Faber says the financial system must be cleansed to save capitalism.
"I think the final low in markets will occur when the system is cleaned out," Faber told CNBC.
Unless that happens, "the way communism collapsed, capitalism will collapse," he says. "The best way to deal with any economic problem is to let the market work it through."
He sees the Federal Reserve and other central banks continuing to print piles of money. And the outcome won’t be pretty.
"The U.S. government for sure will go bust,” Faber says. “That I guarantee you. Not tomorrow, but it will go bust."
He isn’t optimistic for the fate of the global economy either.
“I don’t think that the global economy will recover anytime soon,” he says. “And we have to define what a recovery is.”
If economic output drops far enough, a mere revival of inventories can push growth up a bit, creating a mild rebound, Faber says.
“I take 2006 and early 2007 as the peak of prosperity in this long cycle, and I don’t think we’re going back there anytime soon.”
Many other experts share Faber’s bearish view of the global economy.
“The debate will continue on whether it’s going to be a V, U or L-shaped recession,” former World Bank president James Wolfensohn said at a recent conference.
“My own judgment is that it’s more likely the latter. I don’t believe we’ll get a quick fix any time soon.”
© 2009 Newsmax. All rights reserved.
Shilling: Stocks Will Plunge 32 Percent
Friday, May 15, 2009 5:08 PM
By: Dan Weil
Economist extraordinaire Gary Shilling says that a sharp drop is in store for stocks, thanks to continued economic weakness.
“We think that you’ve got to approach things very cautiously,” he tells Yahoo! Finance.
With the recession running at least through next year, Shilling anticipates earnings of $40 for the S&P 500 Index.
“Normally at the bottom you have a 10 or 12 multiple on that,” he explains.
“With low interest rates, 15 is probably possible. That would put you at 600 on the S&P 500.”
Indeed, that’s Shilling’s target, which represents a 32 percent drop from current levels.
“I don’t think we’re through with this sell-off in stocks,” he says.
“The only place to hide is really my 25-year favorite: 30-year Treasury bonds. They’ve just been a stellar performer.”
To be sure, with Treasury prices having jumped so high, they aren’t so compelling a buy anymore, Shilling acknowledges.
“I still own them, but I’m not sure I’d buy them at this point.”
His macro-market view: “We’re basically long the dollar, short commodities, short stocks and say long Treasuries.”
As for commodities, foreign currencies, and emerging markets, “they were supposedly at least neutral if not negatively correlated with U.S. stocks,” Shilling notes. “Guess what, the correlations are 1.0 on all of them.”
He’s not the only expert who’s bearish on stocks. Doug Kass, president of money manager Seabreeze Partners, says the market faces a “vicious correction.”
© 2009 Newsmax. All rights reserved.
Doug Kass: Vicious Correction Due
Friday, May 15, 2009 4:45 PM
By: Dan Weil
Doug Kass, president of money manager Seabreeze Partners, says that while the stock market won’t return to its March lows, a “vicious correction” is in store.
“It’s going to be bumpy and have a lot of potholes, so we’ll have to be cautious,” Kass told CNBC TV.
The long-short fund that he began Jan. 1 is now short for the first time.
“The good news is I believe that … the variant view that we’ve seen a generational low is intact,” he says.
The bad news: “I do think that stocks are ahead of fundamentals,” he says.
“I think the stock market recovery, I would call [it] the 'Miley Cyrus' recovery. It’s very popular now (however) there may be not so much talent underneath that’s reflected in prices. And perhaps it won’t be as enduring.”
And what are the bearish signs? “There’s a hole in the consumer’s balance sheet,” Kass says.
“And there’s a hole in his confidence, which is justified because of the ill-fated dependency on the asset appreciation of home prices and stock prices.”
Bottom line: “The consumption binge is over,” he says. “This great debt unwind, both from a standpoint of consumer and banking balance sheets, is going to have a long and negative tail to it.”
Others also see stocks correcting before resuming their rise.
“The market … has become somewhat overbought, and the correction should essentially follow, but I doubt it will go and make new lows,” investment guru Marc Faber told Bloomberg.
© 2009 Newsmax. All rights reserved.
Whitney: Bank Stocks Way Overvalued
Thursday, May 14, 2009 2:43 PM
By: Dan Weil
Superstar bank analyst Meredith Whitney says bank stocks are overvalued, thanks to lax government rules that allow banks to overstate earnings.
“I absolutely would not own these stocks," Whitney told CNBC. "Some of these business models are never going to come back."
As for the strong rally by bank shares since March, she said, “I couldn’t believe it with my own eyes, because the underlying … earnings power of these banks is negligible.”
"I call this the great government momentum trade. The government enabled the banks to have better than expected — better than even the banks could organically deliver — first quarter earnings.”
And Whitney says that could continue into the third quarter.
But eventually, banks will come back to earth, she says. That’s because consumers remain under water.
“The consumer’s not going to spend,” she says. “You’ll still see a massive retraction in consumer liquidity."
Whitney says the government’s intervention in the financial system makes trading bank shares very dicey.
"For fundamental investors, you invest on what you know to be the rules of the market," she explains. "With the government involved, no rules of the market apply."
Or, she said, they’re being changed in “the middle of the game.”
Richard Bove, another star bank analyst, disagrees with Whitney.
"The world has changed dramatically in the past two months,” he wrote in a note to investors.
“April was a substantial improvement for financial companies compared to a very dismal March. May is better than April."
© 2009 Newsmax. All rights reserved.
Monday, May 18, 2009 11:41 AM
By: Dan Weil
Investment guru Marc Faber says the financial system must be cleansed to save capitalism.
"I think the final low in markets will occur when the system is cleaned out," Faber told CNBC.
Unless that happens, "the way communism collapsed, capitalism will collapse," he says. "The best way to deal with any economic problem is to let the market work it through."
He sees the Federal Reserve and other central banks continuing to print piles of money. And the outcome won’t be pretty.
"The U.S. government for sure will go bust,” Faber says. “That I guarantee you. Not tomorrow, but it will go bust."
He isn’t optimistic for the fate of the global economy either.
“I don’t think that the global economy will recover anytime soon,” he says. “And we have to define what a recovery is.”
If economic output drops far enough, a mere revival of inventories can push growth up a bit, creating a mild rebound, Faber says.
“I take 2006 and early 2007 as the peak of prosperity in this long cycle, and I don’t think we’re going back there anytime soon.”
Many other experts share Faber’s bearish view of the global economy.
“The debate will continue on whether it’s going to be a V, U or L-shaped recession,” former World Bank president James Wolfensohn said at a recent conference.
“My own judgment is that it’s more likely the latter. I don’t believe we’ll get a quick fix any time soon.”
© 2009 Newsmax. All rights reserved.
Shilling: Stocks Will Plunge 32 Percent
Friday, May 15, 2009 5:08 PM
By: Dan Weil
Economist extraordinaire Gary Shilling says that a sharp drop is in store for stocks, thanks to continued economic weakness.
“We think that you’ve got to approach things very cautiously,” he tells Yahoo! Finance.
With the recession running at least through next year, Shilling anticipates earnings of $40 for the S&P 500 Index.
“Normally at the bottom you have a 10 or 12 multiple on that,” he explains.
“With low interest rates, 15 is probably possible. That would put you at 600 on the S&P 500.”
Indeed, that’s Shilling’s target, which represents a 32 percent drop from current levels.
“I don’t think we’re through with this sell-off in stocks,” he says.
“The only place to hide is really my 25-year favorite: 30-year Treasury bonds. They’ve just been a stellar performer.”
To be sure, with Treasury prices having jumped so high, they aren’t so compelling a buy anymore, Shilling acknowledges.
“I still own them, but I’m not sure I’d buy them at this point.”
His macro-market view: “We’re basically long the dollar, short commodities, short stocks and say long Treasuries.”
As for commodities, foreign currencies, and emerging markets, “they were supposedly at least neutral if not negatively correlated with U.S. stocks,” Shilling notes. “Guess what, the correlations are 1.0 on all of them.”
He’s not the only expert who’s bearish on stocks. Doug Kass, president of money manager Seabreeze Partners, says the market faces a “vicious correction.”
© 2009 Newsmax. All rights reserved.
Doug Kass: Vicious Correction Due
Friday, May 15, 2009 4:45 PM
By: Dan Weil
Doug Kass, president of money manager Seabreeze Partners, says that while the stock market won’t return to its March lows, a “vicious correction” is in store.
“It’s going to be bumpy and have a lot of potholes, so we’ll have to be cautious,” Kass told CNBC TV.
The long-short fund that he began Jan. 1 is now short for the first time.
“The good news is I believe that … the variant view that we’ve seen a generational low is intact,” he says.
The bad news: “I do think that stocks are ahead of fundamentals,” he says.
“I think the stock market recovery, I would call [it] the 'Miley Cyrus' recovery. It’s very popular now (however) there may be not so much talent underneath that’s reflected in prices. And perhaps it won’t be as enduring.”
And what are the bearish signs? “There’s a hole in the consumer’s balance sheet,” Kass says.
“And there’s a hole in his confidence, which is justified because of the ill-fated dependency on the asset appreciation of home prices and stock prices.”
Bottom line: “The consumption binge is over,” he says. “This great debt unwind, both from a standpoint of consumer and banking balance sheets, is going to have a long and negative tail to it.”
Others also see stocks correcting before resuming their rise.
“The market … has become somewhat overbought, and the correction should essentially follow, but I doubt it will go and make new lows,” investment guru Marc Faber told Bloomberg.
© 2009 Newsmax. All rights reserved.
Whitney: Bank Stocks Way Overvalued
Thursday, May 14, 2009 2:43 PM
By: Dan Weil
Superstar bank analyst Meredith Whitney says bank stocks are overvalued, thanks to lax government rules that allow banks to overstate earnings.
“I absolutely would not own these stocks," Whitney told CNBC. "Some of these business models are never going to come back."
As for the strong rally by bank shares since March, she said, “I couldn’t believe it with my own eyes, because the underlying … earnings power of these banks is negligible.”
"I call this the great government momentum trade. The government enabled the banks to have better than expected — better than even the banks could organically deliver — first quarter earnings.”
And Whitney says that could continue into the third quarter.
But eventually, banks will come back to earth, she says. That’s because consumers remain under water.
“The consumer’s not going to spend,” she says. “You’ll still see a massive retraction in consumer liquidity."
Whitney says the government’s intervention in the financial system makes trading bank shares very dicey.
"For fundamental investors, you invest on what you know to be the rules of the market," she explains. "With the government involved, no rules of the market apply."
Or, she said, they’re being changed in “the middle of the game.”
Richard Bove, another star bank analyst, disagrees with Whitney.
"The world has changed dramatically in the past two months,” he wrote in a note to investors.
“April was a substantial improvement for financial companies compared to a very dismal March. May is better than April."
© 2009 Newsmax. All rights reserved.
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6 Comments
Top 1%
beancounter
May 18 2009 at 2:26PM (EST)
mmmm...mmmm...good!
I've been in the Kass camp for a while (as you can see from my barren portfolio), again volume light, big price movement, I always sleep better knowing there is some support for a big gain, or a big move down to go short...I would LOVE there to be a good correction as he's calling for. That said, I am loading up the shopping list for what will be a move down.
Frankly, I could've let my winners run (and I was holding what are now 3 and 4 baggers) longer. I am slapping myself for going to cash too soon, or at least going beyond recovering principal. (of course I said that in September last year, too).
But I was so sure that correction was coming in that I'd be able to reload to full positions at a 40-50% lower price. Is it a bad thing when your penchant for cheap buys costs you on the upside? :-) That said corporate bonds are still looking cheap especially on the insurers...Met Life and Hartford and the rates are into the 10s....
Top 1%
dirtyharry
May 18 2009 at 2:44PM (EST)
Don't beat yourself up for not letting your winners run longer. This market is so overdone it's ridiculous. What's funny is that I think there will be a lot of bulls (here, and elsewhere) that have their hats handed to them and wonder what happened. In many ways this recent run up in prices reminds me of the tech bubble. At least then, the argument was the prices were justified (along with the high P/E's) because we were entering a "new economy" and the high expected future growth was the compensating factor.
What is the compensating factor now?
With unemployment and world-wide contraction, certainly the argument cannot be there is a lot of untapped "growth" out there - or am I missing something? The governments of the world devaluing thier fiat currencies via the printing press will not lead us to prosperity either. I see more pain that needs to be worked out before we can actually get past this mess.
In the end I'm fine with the bulls running up the market. They will continue to give me more short entry points in preparation for the day of reckoning.
PS: I actually would prefer to have this happen sooner rather than later, because I do prefer to be long in the market. I just can't go long after a 30% run up and disasterous news under every rock.
Top 2%
miller
May 18 2009 at 3:00PM (EST)
Harry, you must be kidding.
BAC is a 5th of what it used to be. How s this "tremendously over priced"?
I must wonder what these experts had to say in July 2008.. what will it take to understand these guys know nothing better than you or I do..
Let's see.. a CNBC reporter on the line.. looking for for a "Strong contrarian headline"... what the heck? I'll get some great PR.. no one will really remember this in 6 months..
Well I remember buddy, how you and your friends lost 40% of my savings with your fancy analysis..
I prefer to quote Gurus over these false profits, yourself included :)
Top 1%
dirtyharry
May 18 2009 at 3:16PM (EST)
I have plenty of contempt for "experts" and their opinions. However, "experts" are not all the same. I for one tend to be a fan of Faber and Whitney (both mentioned above). And you asked what they were saying in July 2008? They were saying we were in a heap of trouble. These guys were right while many others were wrong. You can't just lump everyone together. Faber has been blaming the Fed's easy money policies for causing this problem all along - and I agree with him. Not everyone out there is as bold.
BAC is over priced because in fact, it still has plenty of toxic mortgages on its books. Let's put it this way: They just said they needed another $34B to stay in business. Do strong companies need $34B in governmental support - after already receiving $45B in governmental support?
Bank of America's shares should be NEGATIVE because they are overleveraged and upside down with all of their bad mortgages. Banks should be allowed to fail so we can clean out the system and have assets priced properly.
Top 1%
maven100
May 18 2009 at 3:31PM (EST)
Wow...I too agree that we are ovedoue for correction...so who cares? You dont need to be a guru or a Nobel prize winning economist to come to this conclusion....
Both bearish and bullish views have been very well articulated here, in the mainstream media, blogs, etc....no new or fresh perspective for several weeks now from either camp...the market just seems to be churning up and down within a trading range...
Why be early to sell or buy? Why not take what the market is giving you at the moment, whether its earned or not, whether its reasonbale or not, wheather it fits your marcovision or not. To make money in this crazy market you need to be a trader. Use the effing trailing stops and options if you know how. LET YOU PROFITS RIDE...get out with a 7% loss...then reassess again..and decide to get back in or not.......Unless you expect that we will wake up one day and see 500+pt down day (possible, but not highly likely if we just get a regular correction).
Finally, I dont't think one should presume that everyone playing the market long now is 'dumb money'. If you have the time and ability to question and ationalize being long every single position...knowing my stop loss, knowing where every call is trading, etc...
Actually, the fact that no one is actually saying now that we are in the 'new paradigm'...or that we are out of the woods, etc...creates a wall of worry for this market to climb.
Top 1%
dirtyharry
May 18 2009 at 3:41PM (EST)
"You dont need to be a guru or a Nobel prize winning economist to come to this conclusion"
My point here is that many people have not come to this conclusion at all, and I find it rather interesting. I'm just hoping to profit from their folly.
"Unless you expect that we will wake up one day and see 500+pt down day"
Yes - I am in this camp. I do believe we will wake up one day to a 500+ down day. I don't know exactly when, of course, but I believe it's lurking out there. If we can gain 200+ points on the excited of homebuilders raising their confidence index from 14% to 16%, we can certainly have a 500+ down day on truly bad news. Even if there is no 500+ down day - that doesn't mean we can't have 3 x 200+ down days which will provide equal pain (or pleasure depending what side of the market you're on).
PS: These homebuilders are practically as guilty as Greenspan's Fed for causing this mess. They overbuilt relentlessly EVEN when it was obvious to a novice analyst that some markets (Vegas, various cities in Florida and California, etc) could not absorb the amount of new properties being offered.