Posted By: Jane Wells
Those were the words this week from Don Straszheim of Straszheim Global Advisors. He was speaking at the annual forecast dinner for the CFA Society of San Diego. "Gone?" I asked him in disbelief. "You mean, like no more Bank of America [BAC 5.57 -0.30 (-5.11%) ] Versateller ATM for me?" Well, no, he told me. "Just gone as in no shareholder equity left. I don't see how B of A or Citi [C 3.49 -0.12 (-3.32%) ] can be worth anything."
Straszheim gave an impassioned speech to the crowd of finance professionals. He was joined by Liz Ann Sonders, Schwab's Chief Investment Strategist. I moderated the event, taking notes furiously.
Forecasting is always a perilous endeavor, but here are the highlights of what these two pros see looking ahead, based, in part, on looking back.
Straszheim, a well-known expert on China, says we are in the middle of a "global buyers' strike."
What's more, he says the stimulus plan "makes no sense...it's crazy". Why? It's too big, for one thing. Any stimulus check or tax cut he gets would go into savings, not into spending, "because that's the right thing to do." Instead, Straszheim would prefer a package of $250 billion, with most of that going to "those bleeding the most," that is, the unemployed, etc.
Straszheim really gets worked up over the government's desire to get consumers borrowing to spend again, believing one of the worst things that could happen is cheap credit. "I remember when a credit card was for convenience, not a reason to buy things we can't afford." He'd be happy to see credit card interest rates double. He also predicts more gloom for the retail sector, saying years of easy credit have led to "30 percent too much capacity in the retail system", and a lot of stores won't survive.
Other thoughts from Straszheim:
"I think there's gonna be real brain drain from all those companies that have TARP money to those that don't."
"China is going to be weaker I think than most anyone believes." He predicts only two percent growth in China this year, but believes Chinese companies are still a better play than multinationals, suggesting investors look into the FXI, an ETF filled with 25 state-owned companies.
Finally, Straszheim predicts the financial sector, which has already fallen to only 10 percent of total value of the S&P 500, will fall to three percent by the end of 2009. Still, for the market overall, he says, "Fortunes are made at bottoms not at tops."
SONDERS--"MORE CONSTRUCTIVE NOW"
Liz Ann Sonders, who turned bearish is mid 2006, says that now, "I'm not boldly optimistic but more constructive" about the market. She agrees with Straszheim that the "politicians are wrong" for thinking the solution to fixing our economy is to stimulate lending to consumers--that's what got us in trouble in the first place.
She believes Treasuries are in a bubble, but isn't sure when that'll pop. However, she says the yield curve is signaling a recovery.
And using history as a guide, Sonders pointed to some hopeful signs. For one thing, she says recessions in the post WWII era usually last 13 months, and we are 14 months into this one.
Sonders points to a couple of indicators, one worth noting, the other she says you should ignore. The one worth noting is GDP. Historically, once the GDP hits its lowest point in a recession, a year later the S&P 500 jumps 25 percent. The indicator you should ignore is unemployment. In her opinion it is a massively lagging indicator, peaking, on average, six months AFTER a recession ends and probably a year after the stock market bottoms.
Finally, Sonders says people are starting to invest again. In December, 42 percent of US investments were in cash, 42 percent in stocks, and 16 percent in bonds and bond funds. One month later in January, the breakdown had changed to only 30 percent cash, 48 percent stocks, and 22 percent bonds and bond funds. "The deer in the headlights era has passed."
Let's hope so.