John Messner of Messner and Smith suspects we’re in a secular bear market. “Hedge funds and mutual funds are liquidating stocks” as their investors pull their money out, and the process may last a long time as the world deleverages, or sheds excessive debt. “I pity the new president,” he says; there is so much that has to be done to pump the economy up and then to try to stave off inflation after the job is done. “We definitely have toasted the consumer,” says Messner. That’s one reason he likes stocks like Jacobs Engineering, which has been cut in half. Among many things, it does scientific and environmental engineering and consulting for governments all over the world.
Mike Stolper of Stolper and Company, which advises wealthy families and foundations, says this is no secular bear. “It fits the contours of a cyclical bear market,” says Stolper. “In terms of intensity, we saw a full-blown financial panic.”
The bad news has been compressed into a short time period. “This is a head fake,” says Stolper. “We will have a short, sharp recession,” says Stolper. There will be a V-shaped recovery in both the economy and stocks. “A year from now, we will have difficulty remembering whether the swoon took place before or after the election.” In particular, he notes that stocks were reasonably valued in relation to their earnings and book value before the sell-off commenced. At the market’s bottom, those valuations will be extremely compelling. But people hold off buying: “They look to the [stock] market as a gauge of prosperity, and they have this vague feeling they are being bankrupted.” But the fear will evaporate quickly, Stolper predicts.
“I don’t know that it is a secular bear,” says hedge fund pro Todd Buchholz, Solana Beach author/economist with degrees from Cambridge and Harvard Law. “The economic problems are more than can be patched over. So much restructuring is needed.” For now, hedge funds and mutual funds will be selling heavily because of redemptions, and there won’t be enough buying power on the sidelines. “If the credit markets unlock, we will be out of this in the spring. The consensus is that we will stay down a long time. I don’t agree.” He thinks the stock market will be higher a year from now.