Fool Me Once... Bill Miller, Meredith Whitney Face Off Again

Bloomberg has an article today describing the famed value fund manager Bill Miller is extremely bullish about financial stocks, which are his favorite investment for “the rest of the decade.” Meredith Whitney, who rose to super stardom by being the analyst at Oppenheimer (OPY) who predicted that credit market crisis back in 2007, has a very different view of financials at the moment. The opinions of these two certainly carry a lot of weight in the industry and the could not be more different.

Recently, Miller who manages the Value Trust for Legg Mason (LM) has been the one with egg on his face. After an unbelievable streak of 15 straight years of beating the benchmark, his fund took a nose dive of epic proportions as he was blindsided by the economic collapse. He took major bets that the crisis was overblown and took positions in AIG (AIG), Freddie Mac (FRE) and of course both companies were effectively nationalized in September. He also lost big on Bear Stearns, and it was clear that Miller had underestimated the trouble in financial sector. These major moves brought the cumulative return of his fund way down even after the years of great performance, as the anyone who bought into his fund between July 1997 and October 2008 have lost money. Of course the fund has enjoyed a nice run thus far in 2009, outpacing the market yet again thus far.

Well, Miller has gone on record recently stating that he is diving head first into financials again, with his favorites being Wells Fargo (WFC), Capital One (COF) and American Express (AXP). A total of nineteen percent of the Value Trust’s portfolio is in financials, which is certainly an overweight position. Miller is of the opinion that banks will be able to earn their way out of this mess and because of this they are poised to deliver great returns as they have been so beaten down in the last two years. His positions are tied directly to the U.S. housing market with the largest mortgage originator, and furthermore, he has made bets on consumer credit assuming that fears over defaults are overblown. Clearly, a rebound in housing and a turnaround of the unemployment rate would be huge for financials and Miller’s portfolio.

On the other side of the coin, Meredith Whitney, now of Meredith Whitney Advisory Group, has come back into the headlines saying it is far too early to pop the champagne that the bear market is over. She believes that banks will return to negative earnings, possibly as early as next quarter. Because of this she believes that financials are grossly overvalued after the huge rally in the last two months.

She sees a vastly different macroeconomic picture from Miller, as see points to consumer credit and commercial real estate as the next hurdles to a recovery. Recent history would suggest that Whitney has been incredibly sharp and a leader in identifying the problems in many major banks. Miller has the experience edge though, as he started his streak of 15 straight market beating quarters before Whitney had finished her education. One of the two has to be wrong and we see a legitimate argument could be made for either position, but it is clear that Miller has more to lose at this juncture as his reputation has taken a major hit over the last few years. It would seem to us to be a good idea to lay a little lower and not stick your neck on the line for financials yet again. Its funny, that the positions held by these two market titans really hasn’t changed very much in the last few years in all that has taken place.

Original post

Comments

[Larry House:]

Its Meredith over Miller on this one.

May 13 03:46 PM

[Alan von Al...:]

Er, Cetin, GOOG down 2%, headed for 300

May 13 03:48 PM

[Jasper M:]

Miller's performance is a perfect example of the eventual fate of pure trend followers, however perfect their capacity to follow their trend. They get creamed, nay, pureed at the Big Turns.

Meredith predicted what few others did. Pay Attention to her.

May 13 04:19 PM

[mrmillergd:]

Actually my guess is that he wrapped up that competition long ago...


On May 13 08:55 PM Hillsfar wrote:

> Cretin Hammy-Mogul is competing for the notoriety of being the most
> negatively rated commentor in all of Seeking Alpha.

May 13 11:32 PM

[Ishortyou:]

Miller bets were ok up to the point that LEHMAN DID NOT GO BUNKRUPT, afte the unexpected fall of Lehman (due to the moral hazzard we almost all go down to hell!!!, thank you Paulson, democrats and republicans for the political game in name of your contituents..you just sent us to the medieval age..thank you thank you) all the bets were off. Now we are just recovering from the Lehman fall fiasco back to the prelehman levels, but the key still lies in the housing oversupply, everyone misses the point, politicians, counties, banks, home/comercail builders who are still pumping 300k/mo of new house starts! what that ....

May 14 07:31 AM

[Tony Daltorio:]

Bill Miller is a moron who is still stuck in the 90s and expects the bubble in financial stocks to resume. Why in the world would anyone invest in his fund?

May 14 09:50 AM

[Glen L.:]

Bill Miller and Cetin were hired by Bernanke to supply fertilizer for the green shoots.

May 14 10:17 AM

[dtblount:]

My view of Bill Miller is that, with all the money managers there are in the world, at least one had to get lucky. In 2008, his luck ran out and true skill came into play...and he lost miserably.

May 14 12:21 PM

[mikebrah:]

He's got balls of steel....and rocks for brains :)

MM

May 14 01:28 PM

[Fred Voetsch:]

On May 13 03:43 PM Cetin Hakimoglu wrote:

> Bill Miller should stick to baseball, and I disagree with Whitney's
> analysis regarding the state of the economy. Bill Miller is right
> to be bullish, but all his picks are terrible.


Let's see...you or Meredith Whitney? Hmmmm... that's a tough one....

May 14 03:17 PM

[Fred Voetsch:]

On May 13 04:19 PM Jasper M wrote:

> Miller's performance is a perfect example of the eventual fate of
> pure trend followers, however perfect their capacity to follow their
> trend. They get creamed, nay, pureed at the Big Turns.
>
> Meredith predicted what few others did. Pay Attention to her.

I'd pay attention to her even if she didn't get it right. She's hot!

May 14 03:18 PM

[Jasper M:]

Fred,
There is that.

May 14 05:00 PM

[martin harris:]

It doesn't matter who's right. Trade the financials. Buy the skf after the market rallys up on light volume and buy the uyg on big down days. There is money to be made here. I think we chop around for a while before we either break out or break down. Ultimately I think we will break down due to the upcoming commercial real estate crash but time will tell. All I know is between chrysler and GM approx 2000 dealers will close. Think about all that empty real estate. Who's going to lease that space. Walmart? Think about more bad loans banks will have to write off? It should be an interesting few years

May 15 05:29 AM