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Sunday, June 01, 2008

Barton Biggs and Bob Brinker Are Bullish

In the Wall Street Journal article "One Bold Analyst's Latest View: Worst Is Over for Economy, Stocks" Barton Biggs sounds much like Bob Brinker. He says many bears like George Soros think we've had a classic "bear market rally" but he believes the worst is over.

Some excerpts from the story with my comments:
  • Barton Biggs: Conventional wisdom is that the market will test its lows, and go lower again. A really serious bear like George Soros thinks we've seen just the first part of the bear market. I'm nervous, but my intuition tells me that after this consolidation is over, the next move will be up, not down.

This agrees with what Brinker says.

  • Barton Biggs: Right now we've had a classic bear-market rally. The market has recovered 50% of the ground it lost since January. A lot of good things are happening in the world. Since 2000, operating earnings for the S&P 500 are up 63% and dividend yields up 86%, while 10-year Treasurys have dropped from 6.2% to 4%.
Brinker has not called the 20.2% decline in the market a bear market, but other Wall Street experts clearly have.
  • Barton Biggs: If the Federal Reserve has made its last rate cut, that's bullish. After that has happened in the past, the market on average was up 5% after three months and 12% after six months. The price to be paid for this -- it saved the U.S. banking system from subprime peccadilloes -- is more inflation. But it won't be catastrophic, 3% to 5% in core inflation.
    Meanwhile, we are close to the bottom in terms of new-home sales and construction. That's a definite plus for the economy.
    Then we have a huge amount of liquidity on the sidelines, waiting to be invested. It has been increased by all the buybacks. Add stock-repurchase money to dividends, and you have a 5.5% yield on invested funds. Incredible.
    U.S. stocks are the cheapest major asset in the world. The top 50 stocks in the S&P 500 are cheap. Will you get rich owning those stocks? No. Will you get richer? Yes.

I agree. Using funds I had from taking profits (Take Profits Alert) last year with the S&P500 at 1540, I bought SPY at $130 for my newsletter explore and personal portfolios. I think SPY is the easiest way to get diverse exposure to the large cap US stocks.

[Above Chart updated 6/14/08 to fix a typo.]

  • Barton Biggs: As oil stops going up, technology stocks will go up. Companies have been underspending on tech for the last few years, and that will change. Tech providers will see earnings grow, and so they will outperform the market.

I believe this and have been investing accordingly. My explore portfolio usually has its best gains after major market bottoms. In 1999 it did 117% plus some 58% gains in 1998 from the correction bottom. In 2003, after the October 2002 bear market bottom, my explore portfolio gained 77%.

  • Barton Biggs: Emerging markets, particularly the Asian ones, are now 31% of world gross domestic product. They're only going to keep going up.

That agrees with what Jim Rogers says.

  • Barton Biggs: Financial services, though, is a busted sector. More write-offs will come. Banks and financial companies had a long bull market from 2003 through 2007. The magic age is over. It will be years until their earnings are back.

Many othres say the same thing. My gut tells me these financial companies may be part of the bubble in oil and will get short before it collapses to give a boost to their earnings much quicker than anyone thinks.

  • WSJ: Predicting the market can be perilous, right?
    Mr. Biggs: One problem is you can be right but too early. I made my prediction on the tech collapse at the end of 1999, but the peak actually was three or four months later. There was a lot of money to be made in that period. People castigated me, told me I was too old, had hardening of the arteries, had gone senile. This can be hard to take.

Just like Bob Brinker, Barton Biggs was a little early to exit the market before it peaked but they BOTH made great calls before the markets collapsed. Unlike Brinker, I doubt Barton Biggs recommended QQQQ (see Bob Brinker's QQQ Advice) with 20 to 50% of the money taken out of the market in late 2000 just before the tech sector crashed.

    ....there are confident ones; they move from ninety-ten in stocks-bonds to five-ninety-five in stocks-bonds. That implies a degree of self-confidence bordering on hubris and self-deception. Over the decades, when both groups...have equal limited (!) ability to "time," the cautious chaps who alternate between sixty-five-thirty-five in stocks-bonds and sixty-forty are likely to end up with a superior risk-corrected total return score.
    [Paul Samuelson, "Journal of Portfolio Management," Fall 1994]

Lets hope they are both right that the worst is over.

To find out how I've profited greatly from these difficult market conditions, subscribe to "Kirk Lindstrom's Investment Newsletter" today!

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