Editor's Note: Bulls & Bears is a weekly column featuring the opinions of market insiders. Wall Street's most revered investing maestros Jim Cramer and Donald Trump didn't return our calls this week (we were later told to refer to their shows, vintage bankruptcy filings, respectively, for comment). But for what it's worth, in between the throng of the mid-day mob, the following agreed to tell us what they thought for this week's feature. Make of it what you will:
Tom Au, Director, R.W. Wentworth & Co.
I've picked the fair value of the Dow at 7,000; that's its "investment value", which is book value plus ten times dividends. In the 60 years from 1932 to the end of the Persian Gulf War in 1992 the investment value was essential for valuing the Dow. But the Persian Gulf War created a new era and a new economic mentality, with America as the world's global superpower. But now we no longer have the strong dollar, low oil prices, and we're no longer the world's unchecked superpower, so all the things that have led American and European investors to take the Dow above its investment value have just disappeared. Warren Buffet appears to be buying into the post-1992 value of the Dow; by that measure stocks look cheap. But if you take the Dow at its 1932 - 1992 value, stocks are still expensive.
Art Hogan, Chief Market Analyst, Jefferies & Co.
Even if you factor in the downdraft we're in right now and the one coming in 2009, the value of the S&P 500 still doesn't point to expensive stocks. In the worst-case scenario in 2009 we go down 25%. There's so much support in the financial space right now with the federal reserve and other central banks continuing to pour liquidity into the system, so financials will bottom out and look good. [But] energy stocks go down faster with a drop in the energy price than they go up with a rise. Consumer discretionary type names such as homebuilders still have some way to go, and things tied to ad spending should be avoided.
Robert Pavlik, Chief Investment Officer, Oaktree Asset Management
Everyone is pointing to what Warren Buffett said the other day in the New York Times, and he makes a good case. You can liken it to doing a little fishing; throw a line out there and sit back. I have a lot of good till cancelled orders out there much below the market level right now, so if I end up owning one of those quality companies at a much-reduced value, I end up getting even more of a bargain. Any company in any sector is going to get pitched through some kind of lasting recession, and you have to look past that to the third or fourth quarter next year.
Jerome Booth, Portfolio Manager, Ashmore Investment Management
The past few weeks have been turbulent for most asset classes. However, the decline of emerging markets asset prices masks continued strong underlying financial and economic performance of emerging markets. The current market distress has therefore provided substantial opportunities to pick-up value unprecedented for ten years. Emerging markets' current account balances on average have swung into surplus accompanied by a significant increase in international reserves. The current market environment represents an important buying opportunity for emerging market assets.
Yiping Huang, Economist, Citigroup
The [Chinese] reserve requirement ratio still stands at 16% and could be lowered significantly to provide more liquidity for banks. Economic uncertainties mean that we shouldn't expect sharp currency appreciation any time soon. But it is also very unlikely that the central bank will allow the currency to depreciate against the U.S. dollar continuously. Housing prices have already begun to fall significantly in southern China. To some extent, China is already experiencing a type of credit crunch.
John Davidson, President & Chief Economist, PartnerRe Asset Management
From an economic point of view, the situation we are in now is more serious than 9/11. It'll take some time to see how markets respond to the current efforts of fiscal stimulus; the key to this is the credit markets. Most of the time we say, "Where's the bottom in the stock market?" but if you really want to know, the best clues are in the fixed income markets. Some people take a look at the LIBOR spread - these things are better keys to the [bottom of] the stock market than this quarter's earnings.