Money Morning Presents: You expect investment people (like any other salesperson) to talk their books. So most of the time you can take fund managers’ comments on the market with a big heap of salt, particularly if they sound optimistic. But recently, increasing numbers of very respectable people with good track records have been arguing that shares are cheap...

High profile investors are calling the bottom
by John Stepek

Dear Money Morning reader

Anthony Bolton, arguably Britain’s answer to Warren Buffett, said last week that it’s time to get back into the market. Now Bolton’s taken a bit of gentle flack in the papers because he already made that call during the previous big slump in November. But sticking your head above the parapet is never easy, and it’s not as if he’s been relentlessly bullish all the way down.

More to the point, Bolton’s not the only one. GMO's Jeremy Grantham, a US fund manager who was among those warning about the credit bubble well before it popped, has now turned – well, bullish is the only word to describe it. He says investors should have a game plan for getting back in the market, so that they don’t become paralysed with fear. Grantham reckons the S&P 500 is worth about 900 at “fair value”. And “global equities are even cheaper.”

Meanwhile, James Montier at Societe Generale, another highly respected bear and value investor, says he is now seeing some “truly incredible opportunities” in the market (you can read more on Montier’s take on the market in the current issue of MoneyWeek: Will value strategies still work in a recession?).

Stocks are cheap, but they have further to fall

However, it’s not as straightforward as simply jumping right in indiscriminately. As Grantham puts it, he reckons there’s also “still a 50/50 chance of crossing 600 on the S&P 500”. The reason he’s turning more bullish now (and the same goes for Montier) is because he believes stocks are cheap, rather than that they won’t fall any further. “Remember that you will never catch the low,” he says. “Sensible value-based investors will always sell too early in bubbles and buy too early in busts.”

And John Mauldin, another very sharp US investor, reckons the market has a good way further to fall (and if the US market goes lower, you can be sure we will too). “If you have a ten-year time horizon you can probably buy here and do OK. But I wouldn’t.” He argues that investors are still under-estimating how bad earnings will be over the next couple of quarters. “The economy is simply weak, and that weakness is hitting more and more companies… We could see a real bear market rally lure investors back in, just to crush their hopes this summer.”

I’m inclined to agree - there are simply still too many things that can go wrong. And although sentiment is a very hard thing to judge, I still don’t feel that we’ve had that cataclysmic clear-out where everyone who has any intention of selling, actually does so. I am not a technical analyst by any manner of means, but I’d be surprised if we don’t at least challenge the tech bust low (around 3,280) before this is out.

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There are some investment opportunities - if you choose carefully

So as we’ve said before, we wouldn’t be keen to buy a FTSE 100 tracker here. But there are sound investment opportunities, so long as you’re willing to pick and choose. And you don’t have to take my word for it – the participants at this month’s Roundtable discussion, which you can read in Friday’s issue of MoneyWeek (if you’re not a subscriber, Sign up for a 3-week FREE trial of MoneyWeek ), were a lot more upbeat than I’ve seen in a while.

That’s not to say that anyone was ragingly optimistic, or trying to pretend that all our problems are solved. Far from it – one compared the UK to Argentina (unfavourably) and fears over the level of government intervention in the economy are high.

But assuming that this isn’t the end for capitalism (and I doubt very much that it is) then there’s no doubt that some stocks – nice, safe ones with decent yields - look cheap now.

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Turning to the markets...

The JSE All Share Index closed down 1.57%. The Gold Mining Index slipped 2.78%. Resources lost 1.87%. Banks and Financials closed negatively 3.7% and 1.93% respectively. Industrials decreased 1.26% and the Platinum Mining Index added 0.55%.

London’s FTSE 100 closed down 0.18%. The Dow Jones gained 2.48% and the Nasdaq added 4.14%. Tokyo’s Nikkei gained 0.34% and Hong Kong’s Hang Seng closed up 1.53%.

Brent crude is currently trading at $47.72 per barrel.

Spot gold’s trading at $909.39 and platinum was last quoted at $1 051.00.

And here’s how the rand is performing against the major currencies:

R/$ 9.85
R/£ 13.84
R/€ 12.84

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