Another Perma-Bear Converts To Bullish-ism - Barron's

“Perma-bear” Steve Leuthold says he became bullish too early. His perennially successful investment fund is down 31% year-to-date. Yet he tells Barron’s he’s still bullish. He thinks stocks are historically undervalued both on price/earnings and price/sales metrics; relative earnings are at a valuation level equal to all the previous market bottoms. Markets, Leuthold contends, go up 18% on average from this point in the cycle. 

The money manager believes the capitulation phase associated with market bottoms started two weeks ago as hedge, mutual and others funds give up. Mutual funds are starting to see inflows, however, and Leuthold’s number crunchers affirm that federal interventions are easing credit strains. 

Tighter regulation is coming and we’ll face a relatively long, deep recession until Q4’09. But by Leuthold's calculation, stock market bottoms occur when a recession is 60% over. That’s this month. 

Since Leuthold got religion, he's bought Australian and Brazilian bonds and he’s starting to load up on high-yield corporate and municipal bonds. He’s also bulking up on U.S. equities, focusing on healthcare-- biotechs in particular. He considers oil drillers and home improvers like Lowe’s (LOW) and Home Depot (HD) cheap. Leuthold favors battered Chinese stocks, and wonders aloud whether he should be buying more small caps as they too-rapidly overtake large caps again.

Comments

[Mac77:]

Why doesn't he wait for another earnings quarter before he starts spouting about how stocks are cheap. Even if they are cheap, an old WallSteet saying is "Markets can remain irrational longer than investors can remain solvent".

2008 Nov 02 05:16 PM

[Stephen T. S.:]

If Steve Leuthold likes stocks now then he will love them in 6-18 months when they are 50% cheaper than they are now!

2008 Nov 02 05:41 PM

[sr9web:]

Let's see....

100 - 31% = 69
add back in the 18% he'll make (which is 69 x 1.18)
and you get 81.42

looks like he jumped the gun

2008 Nov 02 06:42 PM

[MarvinMBA:]

There are no two markets that evolve in exactly the same way...in fact
whats been happening has never happened before given the problems and
given the ongoing solutions....any market speculation is always dangerous....when jobs start appearing again and unemployment rates start
dropping and banks start lending...in other word when the fundamentals start coming to life that might be a signal for market improvement..MarvinMBA

2008 Nov 02 08:33 PM

[ArtfulDodger:]

These posts prove that the same is true now for stocks that was true for oil back in the spring: everyone was an oil bull then, when GS & T. Boone predicted oil would go to $200, and the futures were rising almost everyday.

Now that stocks have been on a downturn and everyone is scared and the bears rule the airwaves, then all investors see nothing but downside for stocks.

As I warned, albeit a little early, this summer, that oil would crash as would commodities, the same is true of stocks: they will take off to the upside (at least for a while) forseeing the results of lower interest rates and the Fed & Treasury pumping over $2 trillion into the economy.

Even an Obama win this week will be trumped for a while by the $2 trillion in economic fuel. However, eventually, if he's elected and gets what he really wants to do passed, equity investments will suffer greatly.

Molly

2008 Nov 02 11:15 PM

[gabe borens...:]

Here we go again-a massive deceleration does not recession make.
True enough ,the market may have discounted Depression.
Never in the cyclical economic history of the U.S ,did the U.S economy had received such unprecedented stimulus.
The 700 biillion dollars "stability package" will provide 5 trillion dollars "jolt"(700x7),and the drastically lower rates will enhance the the effectivnes of this economic jet fuel.
As impressive as the 900 points rally we have seen ,there is a super mega rally in the period ahead ,that will dwarf the prior rally and will redefine the bullish market concepts.
By mid 2009 the GDP will be growing at 5% and gaining momentum for the next two years .
Dow will reach a 20,000 mark in two years
One observation-hedge funds precipitated the crisis by leaning on the financial sector and distorting the fundamentals in that and other sectors.
If in fact the hedge fund gave up two weeks ago-they gave up being short.
This cycle is not about the perfect timing nor comparison with the past as we have faced and addressed a different phenomenon.
It suffices to say that U.S is on the way to a record recovery and the dollar inflows (which will enhance economic expansion ahead),reflect the global agreement on that topic.
At this point,the only thing to fear is the fear itself.

2008 Nov 02 11:48 PM

[bobbobwhite:]

Gabe writes like Larry Kudlow sounds every day on CNBC. Emotional Pollyannas both with few backing facts. It will be nowhere near as rosy as they say in our near future economy. Just the fact of Obama as President will be a market negative, along with the global financial crisis which hasn't even started to recover yet, perhaps hasn't even hit bottom yet. Then, there is the falling GDP, widening trade gap, higher unemployment, dead housing market, etc..... no signs of improvement.

2008 Nov 03 11:06 AM

[waf76:]

i dont think obama will be bad for the market. this is a line i hear repeated ad nauseum like weapons of mass destruction....while i'm optimistic about the recovery and i do think we will test new highs and things might be as rosy as Gabe describes (ok not that good), it will be followed by an even bigger collapse....

2008 Nov 03 03:33 PM

[occdude:]

As GM goes so does the country, remember that?

Well GM is going in the cra@pper, so how does that bode for the USA?

I think we're in a powerful deflationary cycle that is just the culmination of a sustained secular bear market. This last episode in Oct. gave a pretty good look at what the future holds and that means EVERYTHING goes down in deflation

2008 Nov 04 01:01 AM

[Ames Tiedeman:]

We are not done falling. The bulls are all wrong..

2008 Nov 08 09:28 AM

[Ray Lopez:]

I agree with all the bears in this thread, and also point out, like several posters, that the math is wrong:, se here: "Tighter regulation is coming and we’ll face a relatively long, deep recession until Q4’09. But by Leuthold's calculation, stock market bottoms occur when a recession is 60% over. That’s this month. "

No. If Q4'09 is December, and the recession started this spring, then we are 3/(3+4) = 42% over it, not 60%. So we need to wait a few more quarters before saying we're 60%.

Another "buy side bull" piece. Since it's easier to buy long than short for most retail investors, Wall Street makes their commissions this way. Same old story.

2008 Nov 08 02:10 PM

[kcroyals77:]

Many stocks are cheap based on current earnings but You have to figure the savings rate from consumers is going to have to go back to around 5%. Trim opff about 4% from GDP and what will your stock earnings be then? A whole crapload of stocks will turn negative and today's "cheap" stocks will then look awful expensive.

Oct 14 08:52 PM