- Investors who missed the March rally could get a break if the April pullback in stocks continues.
A retreat in the market, expected after a violent upsurge of at least 21 percent across the indexes, would provide a chance to put at least some sideline money to work for leery investors who stayed away the past four weeks. Markets fell more than 2 percent Tuesday after a small loss Monday.
Some of the comments posted.
- "There's certainly some pressure on managers to put some money to work. I would expect that we would see a pullback as an opportunity for people to deploy more capital," says David Twibell, president of wealth management for Denver-based Colorado Capital Bank. "We're planning to put money to work if we do get a pullback. Not a tremendous amount—we're certainly not going to get extremely aggressive."
- "A lot of the sectors that we're finding most undervalued are service sectors, sectors that are kind of the second derivative of growth for the economy," says Chris Armbruster, senior research analyst at value-based Al Frank Asset Management in Laguna Beach, Calif. "Businesses that are dependent on consumer spending, not necessarily tied to business activity...will benefit as the consumer starts to rebound.
- One thing all of his recommendations have in common is they focus on companies that are priced below their market value and look promising in a three- to five-year time frame, not merely until the next bear market rally.
- "The timing for us is always secondary to valuation. A lot of these names and these industries are trading at value prices," Armbruster says. "We don't know if the market is going to have enough confidence to adjust those numbers higher in the next three months or three years. We know if we're patient the value in the shares of these prices will be realized."
- Gold prices have tumbled off their highs set in the stock selloff this year, but some advisers see the metal continuing to be a safe place to keep money amid the market turmoil.
"It's an insurance policy against more economic chaos," says Peter Miralles, president of Atlanta Wealth Consultants. - That's the kind of investing that Bradford Pine, an adviser with Cantella & Co., recommends for those with low risk tolerance who nevertheless want some stock exposure. In fact, Pine counsels even those clients looking to buy individual stocks to stick to dividend-payers in the current high-risk environment.
"It's more about the long-term outlook," he says. "Rolling the dice to find that $4 stock that's going to double is not the prudent investment unless you have that risk capital." - It's a false sense of security," says Julie Murphy Casserly, president of JMC Wealth Management in Chicago and author of "The Emotions Behind Money." "It tells me we are not done with this rollercoaster ride because people have not learned enough lessons yet."
In fact, Casserly advises against aggressive rebalancing of portfolios and is telling clients to "expect turbulence for at least another six months," during which they should keep adequate amounts of cash on hand. - Mohamed el-Erian, co-CEO of the Pimco bond fund, addressed the issue Tuesday when asked on CNBC whether the market could revisit the lows previous to the rally.
"The intellectually honest answer is we don't know," he said. "I have a fear right now that people are sucked into the equities market. ... Go in as long as you can afford to lose that money."
On the other side of the fence, here is a suggested article: Tactical Analysis Part II: The Strong Bear Market Rally Outcome
And of course the strong warning from Mr. George Soros: George Soros warns shares will fall further
- Like Mr Soros, analysts at Morgan Stanley warned the bear market was not over. They said in a note: "We have to decide whether this is towards the end of another bear market rally that we should sell into now that hope has grown, or the start of a much larger advance, maybe even a new bull market. Our decision is to sell into strength now."
Optimism around the world was boosted last week after the leaders of the G20 countries agreed to a six-point plan designed to ensure the global recession does not turn into a depression. But now there are concerns the leaders did not go far enough.
Mr Soros, whose flagship Quantum Endowment Fund generated 8pc returns last year compared to an average decline of nearly 20pc among other hedge funds, told Bloomberg Television: "The recovery will look like an inverted square root sign. You hit bottom and you automatically rebound some, but then you don't come out of it in a V-shaped recovery or anything like that. You settle down, step down.
"[President Barack Obama] has done very well in every area, except in dealing with the recapitalisation of the banks and the restructuring of the mortgage market."
And not forgetting Dr. Marc Faber. Stocks May See ‘Correction’ of 10%, Marc Faber Says
- April 7 (Bloomberg) -- Marc Faber, the investor who recommended buying U.S. stocks before the steepest rally in more than 70 years, said the Standard & Poor’s 500 Index may drop as much as 10 percent before resuming gains.
The measure may decline to about 750 and rebound after July, Faber, 63, said in a Bloomberg Television interview in Singapore. Global stock markets are unlikely to fall below their October and November lows, he said.
“We need some kind of correction, maybe around 5 to 10 percent, and after that we can maybe rally more into July,” said Faber, the publisher of the Gloom, Boom & Doom report. “The economic news, while it won’t be good, the rate of getting worse will slow down.”
The S&P has rallied 25 percent from a 12-year low since March 9, when Faber advised investors to buy U.S. stocks, saying government actions will boost shares. Asian equities are among the best bets for global investors because they are attractively valued and will benefit the most from a global economic rebound, Faber said.
He told investors to abandon U.S. stocks a week before 1987’s so-called Black Monday crash and said in August 2007 that U.S. shares were entering a bear market. The S&P 500 peaked two months later before retreating as much as 57 percent.
Commodities, Banks
Faber said he bought some commodity producers in November and is now less “interested” in these companies after some stocks more than doubled. He is also buying some bank stocks and predicted that Citigroup Inc. shares could “easily rebound” to around $5 from $2.72 currently.
“The rebound potential for some of these banks and financial institutions is quite high,” Faber said.
George Soros, the billionaire hedge-fund manager who made money last year while most peers suffered losses, is less optimistic, saying the banking system is “seriously underwater” with banks on “life support.”
The four-week rally in U.S. stocks isn’t the start of a bull market because the economy is still contracting and there’s a risk the U.S. falls into a depression, Soros also said in a Bloomberg Television interview yesterday.
Citigroup lowered its rating on U.S. equities to “underweight” from “neutral,” saying the rally is set to end and the market’s valuations are less attractive, strategists led by London-based Robert Buckland said in a report yesterday.
S&P 500 futures expiring in June were unchanged at 830.40 at 12:35 p.m. in Singapore.
‘Better Value’
In Asia, stocks offer “much better value” than U.S. shares, and investors should seize the opportunity to buy the region’s equities on “every setback,” Faber said. Japanese stocks also “look interesting,” he added.
“If you buy Asian equities in the next three months, over the next five to 10 years, for sure you will make money,” he said. “Asian exporting countries will benefit the most from an expansion when it happens.”
Faber is less favorable on bonds, saying they are entering a “long-term bear market” that can last for the next 15 years to 20 years.
Investors should also diversify into the currencies of Canada, Australia and Singapore because in the U.S. dollar “may weaken somewhat,” he added. The dollar has strengthened against all of the so-called Group of 10 currencies except the yen in the last 12 months, according to data tracked by Bloomberg.
Faber still advises investors to buy gold even though the precious metal is going to be “dead money” in the next three to six months. He plans to buy more gold if prices drop to between $750 and $800 an ounce, he added. Prices retreated yesterday to $872.8, the lowest in more than two months.
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Update: In another article, Bear Market Will Continue: Roubini
- There's still bad news ahead for the US economy — and by extension for Canada — and the bear market for stocks is not over yet, according to a prominent economist who foretold much of the current turmoil.
Nouriel Roubini, a professor at New York University's Stern School of Business and chairman of economic research firm RGE Monitor, said on Tuesday that he expected more dour macroeconomic data and problems in the banking and housing sectors, as well as pressures on consumers.
Big stimulus packages will eventually slow the rate at which economies contract, but that will take time, he added.
"There will be a light at the end of the tunnel somewhere down the line, later rather than sooner," he said at a Toronto news conference, which took place ahead of a Sprott Asset Management event entitled "A Night with the Bears."
Roubini, who made a name for himself by sounding early warning signs about housing bubbles and credit crises, earlier told Canada's BNN television that he still believed the recent market upturn represented a bear market rally, and not a change in sentiment.
"Macro news, earnings news and financial shocks are going to be worse than expected and that's why I believe this is still a bear market rally," he told BNN.
Markets logged four straight weeks of gains until this week on optimism that unprecedented interest rate cuts and billions of dollars of stimulus will eventually fight off the worst global downturn since World War Two, and on upbeat comments from U.S. banks on their performance so far in 2009.
The fact that some indicators did not match pessimistic expectations was also a positive factor, as were last week's pledges by world leaders to do more to fight the crisis.
But Roubini played down the rally.
"I am more a realist than a pessimist. I'll be the first one to call for the bottom of this economic contraction, recovery of the market when I see a sustained economic and therefore financial recovery," he said.
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