Barton Biggs
Barron's: Rumor has it you've turned bullish. Why?
Biggs: Things have worked out much as we thought since January. But we're
either at or close to an important bottom, and the selling has gotten overdone.
Sentiment has gotten too depressed. Valuations have become somewhat
more attractive both in the U.S. and around the world. So I think we're setting
up for a rally that lasts for a couple of months and takes the S&P up roughly
15% and the Nasdaq up 30%. And it takes a lot of these busted stocks up
50%.
Q: But the market overall is not out of the woods, is it?
A: No. There are still a lot of problems. But there are some fundamental
reasons to think the market will rally, not just the fact that valuations are
cheaper and the market is oversold. We've got at least three, probably four,
quarters of favorable earnings comparisons ahead. Inflation is still very low.
The Federal Reserve is still very easy. The U.S. and world economies are not
going to fall apart. Is it going to be a slow, sluggish recovery? Yes. But real
growth will be 3% in the second half of this year, and S&P earnings will be up
20%-25%.
We are not into a new bull market, but we may well have hit the bottom of the
trading range. Beyond this rally the market will just mill around, but within an
environment of 2½%-3% inflation, because the Fed errs on the side of ease.
To a certain extent it's a stagflation-type environment of relatively sluggish
growth, a little increase in inflation and Treasury rates rising one-half to
three-fourths of a percent.
Q: So no new lows for
stocks?
A: A lot depends on whether
there is another bolt from the
blue, be it a terrorist attack that
disrupts the economy or some
kind of financial accident. If
not, we're close to the lows.
Q: Investors aren't acting
that way.
A: Individuals probably will sell
into the rally. The institutions
don't know what to do. They
are trying to figure out how to
justify 9%-return-on-asset
assumptions. There aren't any
big, liquid financial alternatives
to get you there. They are
going to have to be more
aggressive asset allocators,
selling stocks on strength and
buying on weakness.
Q: What should they be
selling and buying now?
A: Technology, media and
telecom are all going to do
pretty well, particularly names
like AOL Time Warner,
Nokia, EMC and Cisco. The
same with some other busted
stocks, like Tyco International,
and groups like
pharmaceuticals around the
world. Abbott Laboratories,
Merck and Pfizer are the good ones, and Schering-Plough and Bristol-Myers
Squibb are the troubled ones. But the drugs are starting to look like value. I
still like natural gas -- Burlington Resources and Phillips Petroleum. The
financials will rally, but should be underweighted in the future. There are still
more bodies to come up from the depths. All the losses haven't been
recognized yet. |
