Holding a Ladder for the Wall of Worry by Sandra Ward
Summary: International guru Jason Trennert, a 15-year veteran of International Strategy & Investment Group, is bullish U.S. stocks -- but worried about emerging markets.
- U.S. markets have not fully digested already established higher earnings levels, and the 10-year 4.7% Treasury yield is a "safety net" for healthy returns.
- Private equity funds are "early innings" with regard to their ability to raise funds, but may be "late innings" with regard to their ability to add alpha. Joining the game now may not be prudent.
- Recession is very unlikely due to the combination of exceptionally healthy corporate balance sheets coupled with 4.5% unemployment keeping both consumer and provider happy.
- The impact of reduced mortgage equity withdrawals on the economy is overrated: they've already dropped from $700 billion to $200 billion over the last year, yet we haven't seen the widespread fallout some predict.
- Interest rates may drop mildly through year-end.
- What causes him concern is the U.S. investor's love affair with emerging markets: Investors seem more worried about domestic markets than their less-proven overseas counterparts. The S&P 500 trades at 15x earnings, while China's Shanghai A Index is at 40x.
- Trennert's current asset allocation: 75% equities, 10% bonds and 15% cash.
- He's most bullish on tech stocks because of their underperformance over the past 4-5 years. He also likes biotech: Any billion-dollar company is a takeover candidate within the next 2 years.