Barton Biggs and Bob Brinker Are Both Bullish

In the Wall Street Journal article "One Bold Analyst's Latest View: Worst Is Over for Economy, Stocks" Barton Biggs sounds much like Bob Brinker. He says many bears like George Soros think we've had a classic "bear market rally" but he believes the worst is over.

Some excerpts from the story with my comments:
 

• Barton Biggs: Conventional wisdom is that the market will test its lows, and go lower again. A really serious bear like George Soros thinks we've seen just the first part of the bear market. I'm nervous, but my intuition tells me that after this consolidation is over, the next move will be up, not down.

This agrees with what Brinker says.

• Barton Biggs: Right now we've had a classic bear-market rally. The market has recovered 50% of the ground it lost since January. A lot of good things are happening in the world. Since 2000, operating earnings for the S&P 500 are up 63% and dividend yields up 86%, while 10-year Treasuries have dropped from 6.2% to 4%.

Brinker has not called the 20.2% decline in the market a bear market, but other Wall Street experts clearly have.

• Barton Biggs: If the Federal Reserve has made its last rate cut, that's bullish. After that has happened in the past, the market on average was up 5% after three months and 12% after six months. The price to be paid for this -- it saved the U.S. banking system from subprime peccadilloes -- is more inflation. But it won't be catastrophic, 3% to 5% in core inflation.
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  Meanwhile, we are close to the bottom in terms of new-home sales and construction. That's a definite plus for the economy.
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  Then we have a huge amount of liquidity on the sidelines, waiting to be invested. It has been increased by all the buybacks. Add stock-repurchase money to dividends, and you have a 5.5% yield on invested funds. Incredible.
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  U.S. stocks are the cheapest major asset in the world. The top 50 stocks in the S&P 500 are cheap. Will you get rich owning those stocks? No. Will you get richer? Yes.

I agree. Using funds I had from taking profits (Take Profits Alert) last year with the S&P500 at 1540, I bought (SPY) at $130 for my newsletter explore and personal portfolios. I think SPY is the easiest way to get diverse exposure to the large cap US stocks.

• Barton Biggs: As oil stops going up, technology stocks will go up. Companies have been underspending on tech for the last few years, and that will change. Tech providers will see earnings grow, and so they will outperform the market.

I believe this and have been investing accordingly. My explore portfolio usually has its best gains after major market bottoms. In 1999 it did 117% plus some 58% gains in 1998 from the correction bottom. In 2003, after the October 2002 bear market bottom, my explore portfolio gained 77%.

• Barton Biggs: Emerging markets, particularly the Asian ones, are now 31% of world gross domestic product. They're only going to keep going up.

That agrees with what Jim Rogers says.

• Barton Biggs: Financial services, though, is a busted sector. More write-offs will come. Banks and financial companies had a long bull market from 2003 through 2007. The magic age is over. It will be years until their earnings are back.

Many others say the same thing. My gut tells me these financial companies may be part of the bubble in oil and will get short before it collapses to give a boost to their earnings much quicker than anyone thinks.

• WSJ: Predicting the market can be perilous, right?
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  Mr. Biggs: One problem is you can be right but too early. I made my prediction on the tech collapse at the end of 1999, but the peak actually was three or four months later. There was a lot of money to be made in that period. People castigated me, told me I was too old, had hardening of the arteries, had gone senile. This can be hard to take.

Just like Bob Brinker, Barton Biggs was a little early to exit the market before it peaked but they BOTH made great calls before the markets collapsed. Unlike Brinker, I doubt Barton Biggs recommended (QQQQ) (see Bob Brinker's QQQ Advice) with 20 to 50% of the money taken out of the market in late 2000 just before the tech sector crashed.

”....there are confident ones; they move from ninety-ten in stocks-bonds to five-ninety-five in stocks-bonds. That implies a degree of self-confidence bordering on hubris and self-deception. Over the decades, when both groups...have equal limited (!) ability to "time," the cautious chaps who alternate between sixty-five-thirty-five in stocks-bonds and sixty-forty are likely to end up with a superior risk-corrected total return score.”
[Paul Samuelson, "Journal of Portfolio Management," Fall 1994]

Let's hope they are both right that the worst is over.

Comments

[User 120461:]

I am not sure you can trust anyone in a tie to read into the future. Beware of both Brinker and Biggs and their mostly long positions.

2008 Jun 03 09:11 AM

[User 143167:]

It must be a joke. Currently the US stocks are among the EXPENSIVE and OVERVALUED group of stocks, even if they are not the most overvalued one.
If the global growth is really so great, I would like to buy a Chinese index with 20x forward 2008 PE or 13x in Hongkong. If we are heading for a stagflation, I would like to a Brazilian index with 16x PE. If there is gonna be a recession, a 11x PE in Europe or 16x PE in Japan are also safer than the US stocks.
How those talking heads keep saying the US stocks are cheapest without even looking at these valuation matrix is a CRIME.

2008 Jun 03 10:08 AM

[What are yo...:]

Hahahahahahahaha You're killing man...

2008 Jun 03 10:38 AM

[cobvius:]

Our banks cheated the world for commissions and went broke. From vodoo economics to Bush abused of the reserve currency credit card to "reduce you're taxes". we're impoverishing ourselves . Meanwhile the new indentured slaves toil hopelessly under their 30% credit card whip. Hungry and unhorsed, food and fuel demanding more of these devalued but harder to earn dollars. The new jobs as health aids, maids, and waitering on the novu-rich foreigners don't pay much. Their governments didn't live on their currencies, but drilled, educated and elected wise and able leaders, not starters of wars they can't execute because they never have learned, but as royaltylike son of president, did not rise in the cruchible of life, bushed ahead.
WE WILL PAY WITH 1929 LIKE PAIN.

2008 Jun 03 12:13 PM

[whidbey:]

Will, Brinker thinks the PCEI is correct and that TNX is where it belongs given 2.5% core inflation. Need I say more? Both gentlemen are likely early if for no other reason than the elections coming up. Wall Street may not be full of genius but they do know do know about self-interest and right now they are playing it safe and raising cash. This is what the WSJ has become. Pitiful.

2008 Jun 03 02:16 PM

[pepe:]

Please don't base my future wealth on what "conventional wisdom" tells you.

What crystal ball tells you that "new homes and construction are close to their bottom" ?

"Huge amount of liquidity sitting on the sidelines"; do you expect it'll pour back into the market now, while the market continues to correct downward?

"U.S. stocks are the cheapest major asset in the world". Perhaps there's a very good reson for that;duh!

"As oil stops going up, tech stocks will go up". When do you predict oil stocks to stop going up?

Et cetera, et cetera, et cetera! Who do you think you are talking to?

2008 Jun 03 02:48 PM

[samadams:]

WSJ and Barrons are stock market pumpers like Kudlow and CNBC. Wonder if Rupert Murdoch is behind this.
I respect Mr Biggs but I suggest he come down here on main street for a while.

2008 Jun 03 06:29 PM

[trw88:]

I'm sure Mr. Biggs is thrilled to have your respect.

Gloom and doomers always lose, deservedly so. American stocks are cheap. As the weak dollar/strong commodity cycle recedes, foregin money will pour into the US market and it is cheap. New records coming.

I love the internet. You have no clue but you can still "wonder" if Rupert Murdoch is behind something, I don't know exactly what.

Why dont you go short and see who gets it right?

2008 Jun 04 07:31 AM

[User 143167:]

trw88, wise up. The earnings of American stocks are mostly based overseas. If you base your stock market selection on forex rates, at the end of the day, it is what currency the earnings are denominated that matters, not what currency the stocks are denominated. So the rise of $$ is very BAD for the US equity market.

Same goes to the energy price, which will destory the 3rd biggest sector currently in S&P500 index if it drops.

2008 Jun 04 10:51 AM

[James Davis:]

Tweedledee And Tweedledumb

Worst calls in history.

Embarrasing

2008 Jul 01 01:35 PM

[Snapple:]

Bob Brinker - I have always enjoyed his shows and commentary. I decided earlier this year to subscribe to his newsletter, the "Market Timer" due to all of the market turmoil. Bob first advised to buy in the S&P low 1300's only to send an alert out and change his mind after the market dropped further than he had predicted. A few weeks ago he said to buy in the S&P low 1200's, only to send out another alert and change his mind again after the fact. My warning to everyone is to trust your own insticts (as I should have. I would be much better off now if I had stuck to my own plan) and not to expect to get good advice from a newsletter. Anyone can react after the fact. I would not consider that "market timing".

2008 Sep 17 06:46 PM

[richcash8:]

Reality check one quarter later:
FXI 50 to 30 -40%
SPY 140 to 115 -18%
Some bottom.
Booyah!

2008 Sep 18 01:35 PM

[James Davis:]

Another goo roo with feet of clay.

2008 Oct 26 12:12 AM