Monday Money Tip: Bear market unlikely, a prognosticator tells us

The New York Stock Exchange and the rest of the market could be headed for a correction, author David Rosenberg says.
The New York Stock Exchange and the rest of the market could be headed for a correction, author David Rosenberg says. (MARK LENNIHAN / AP)
Posted: July 29, 2014

There might be a stock market correction, but a full-blown bear market looks a long way off.

So said prognosticator David Rosenberg, author of the daily research note "Breakfast With Dave," last week. Rosenberg was one of the few economists who called correctly for a recession in 2007.

"Thankfully, as much as we are long overdue for a technical correction, a fundamentally based bear market looks to be well down the road and beyond the forecasting horizon at the present time," the native of Canada wrote for his research firm, Gluskin Sheff & Associates.

A "correction," in stock market parlance, equals roughly a 10 percent loss, while a bear market would total a 20 percent loss, in major indices such as the Dow and the S&P 500.

On the other hand, Rosenberg contends that inflation will be Federal Reserve chair Janet Yellen's legacy, as she continues Ben Bernanke's record-low interest-rate policy.

In recent weeks, Rosenberg has argued that the Fed's continued "easy money" policies are misallocating investments: Instead of plowing money back into their businesses for the future and creating jobs, companies are borrowing cheap funds to buy back their own shares.

With the U.S. economy and employment recovering, albeit at an anemic pace, Rosenberg now foresees a slow growth-plus-inflation scenario in years to come - known as "stagflation."

"The Federal Reserve monetary spigot is still open as inflation pressures become more apparent," Rosenberg argues. "This Fed will not make a preemptive strike to ensure price stability but is instead falling behind the curve." This should prompt buying "hard assets," Rosenberg advises. Hard assets include investments such as precious metals and real estate.

Housing ideas

Speaking of real estate, Bill Feingold's Hillside Advisors L.L.C., based in Valhalla, N.Y., thinks there is an investment opportunity in home builders. Following is a list of smaller home builders, besides Lennar (LEN) and Toll Bros. (TOL), the upper-end home builder. Feingold believes that these names offer better value.

The Ryland Group (RYL) is focused on entry-level buyers. It has been consistently profitable through most of the recent deceleration in the industry, and has recorded healthy new contract closings despite a lackluster first quarter for housing.

Meritage Homes (MTH) is focused on high-growth geographic areas of the country, and has cash flow and a balance sheet strong enough to promote growth. Finally, M/I Homes (MHO) is focused on entry-level buyers.


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