• With: Tobin Smith, Gary B. Smith, Gary Kaltbaum, Jonas Max Ferris, Jehmu Greene



    Gary Kaltbaum: It's not right around the corner; it's already here. The greatest leading indicator is the market. We are seeing financials, semi-conductors, and retail dropping. We're seeing stalled numbers in the U.S. and Germany. It is not going to take much to tip this over. I expect the coming quarters to be negative. Hopefully they aren't too negative, but I am quite worried right here.

    Jonas Max Ferris: Emerging markets are down more, so are China and all the emerging markets in a recession as well? The stock market is a good leading indicator, probably one of the best. But, every fifteen to twenty percent drop does not cause a recession. It's wrong a lot. People get scared for no reason and then we don't have a recession, we just have a slow economy or we rebound and stock prices go up. It's not always a 50 percent decline like the last two times. It can happen, but it doesn't mean a recession is going to happen. I don't think it's going to happen this year. I don't think it's going to qualify as a double dip. Sure, there will be a recession in two or three years. Usually you have one every five or six years. It has only been the last couple of decades where it looks like they're every ten years. That's not true historically. So, sure we'll have one eventually. I don't think it's this year and the stock market is not always the best indicator.

    Tobin Smith: The market and the economy are not related at all, except for two points during the cycle. One is at the peak of the cycle and certainly in 2007 when we had the earnings growth and the economy peak, when we rolled over then, they were correlated. They worked together. The market foretold this pullback. At this point, however, the one thing that happened in the last recession is that we had earnings at stock prices at nineteen or twenty times a dollar of earnings. That's a very high multiple. At this point, we're pricing stocks at ten times a dollar of earning --half of that valuation. So, it would be extremely rare to say that we're going to have a soft patch. We already have a soft patch in the economy. But to say that it will turn into the next bear market that would say that earnings had peaked and earnings have not peaked.

    Jehmu Greene: Technically, we are clearly not in a recession, though I do think that most Americans probably feel like we are. I had a root canal earlier this week and I'm still in pain and I feel like that's exactly where we are right now with looking at a possible recession. I think you have to look at the fact that unemployment, although still really high, is slowly going down. I think there are many things we're going to hear from the president in a week or so to make sure we don't go into a second recession. We're not there yet, but we're still in pain from this once-in-a-generation crisis.

    Gary B. Smith: I "Googled" the double dip recession today. It gets hundreds of thousands of hits. Every single person, except for maybe a couple on this panel, is calling for a double dip recession. Usually when the sentiment is that low, it's a coiled spring and I think the coiled spring is ready to upwards and here's why. You mentioned that companies are making money, but also have a ton of cash on hand. Then, consumers are in the same shape. They, as you well know, have been cutting down on their consumer debt and the savings rate has gone up. So, you have the two coiled springs in the corporations and consumers having a lot of cash. What's the trigger? The trigger would be if they can see a clear environment out there and I hate to disappoint Jehmu, but I don't think Obama is going to clear that up. What's going to clear it up is the 2012 elections, which are right around the corner. So, you have these things waiting. I really do think we do muddle through here and I'm not that positive on the economy. But I am positive enough to see there's light at the end of the tunnel. Hopefully it's not a train coming. And I actually see some good things.


    Gary B. Smith: It's the same old song and it's a really lousy song. Let me just tick off point by point what President Obama is going to say. We've all heard it before. He's going to call for payroll tax cuts, which I think is horrible, but better than nothing, but really lousy. It would be better to cut marginal tax rates, which of course, he doesn't want to do. He's going to call for stimulus infrastructure spending. Of course, we tried that already and we've seen what it's done to the unemployment rate. He has an infrastructure bank-more government bureaucracy. We know what that does. And he wants to extend or enhance unemployment benefits. So, essentially, you're paying people not to work. Again, that's been proven time and time again to do absolutely nothing for the economy. So, we've heard it all before. It's horrible. I think people are going to be even more depressed when he comes back from vacation.

    Jehmu Greene: I think many Americans are fed up with everyone in Washington D.C., but I think we have to agree with the president that we don't have to choose between getting our fiscal house in order and jobs and growth. Many Republicans have tried to set up that dynamic. It is absolutely important that we extend the payroll tax cuts because we would lose one million jobs if we don't. That is something we can't afford. I'm not sure how that would add to the woes we are already facing. That's not something that the president is willing to stand for. Fixing schools and communities that need to be fixed up are opportunities for jobs. I think there are going to be some new things on the table, some tax cuts for payroll hires if the employers make those hires.

    Gary Kaltbaum: First of all, that big stimulus we had, we were told that there was going to be a ton of infrastructure in it and that never got done, so all of a sudden we're supposed to believe it this time? The bottom line is, government-centric policies do not work. There is not one thing coming out of this president's mouth that says here is some certainty for you-corporations and individuals. Everything is targeted here or there. Everything is government saying if you do this, we'll give you that. That doesn't change the behavior of the consumer or corporations and that's why we're still in this situation and that's why it's going to get worse if he continues to do the same thing over and over again.

    Jonas Max Ferris: It's a little suspicious that right when the stimulus is running out, we're kind of slowing down the economy again. I'm not so sure it did nothing as far as pushing along the economy for a couple of years and why it was cranking along. I think Obama has realized his mistakes and there have been a lot of them that he's made over the last few years, notably wasting a whole year on health care when he could have been continuing to fix the economy, which he thought was fixed. Basically, these spending programs can prevent a recession. There have only been two recessions under Democrats since Truman because they spend money during recessions and it prevents them. What doesn't work is to buy yourself out of a recession is talking about tax cuts. They're not doing old school FDR stuff that keeps you out of a recession. They missed that boat for two years. It's why he probably won't get reelected. It's why the unemployment rate is still high. He wasted it and now all he can talk about is tax cuts and stuff that isn't the old school way.

    Tobin Smith: This is like the college laboratory for the sophomore who has never really been involved in any work or life and is messing around with really cool ideas. Let me give you an example. The infrastructure bank, if it was done correctly with free market principles, absolutely could work. It has worked in many other cultures and countries. But, it has to be based on capital that is going to private enterprises, to private investment firms, who compete for jobs. It cannot be by crony capitalism, not by crony patronage and you know that if we actually ever did an infrastructure bank that it would be Barney Frank and someone else putting it all out to all his friends. That would not work and we've already proven it doesn't work.


    Tobin Smith: The most dangerous word in investing is "this time is different." It's not. The two things you have to look at are, there is no question we could have a mild recession coming here. But the valuation of stocks is nowhere near where we're at. Gary B. made a great point that you don't have a top in the market when everyone hates the market. You don't have a top in the market when valuations are 50 percent lower than they would be historically. But, you do pick your spots. So, the opportunity here is to not buy the cruddy stocks, but to buy the companies that really are the secular growth, that are the winners and the new leaders of a new bull market are not the old guys.

    Gary Kaltbaum: I just believe in what I'm seeing right now. All evidence is the big money crowd is still selling and selling in mass. The buyers are just not there. Prices are getting knocked around left and right. They're really not leaving any stone unturned. This action that we've been seeing does not remind me of a normal correction like we saw last year, or a normal bear market. I'm worried about something more. I hope I'm wrong, but I have to tell you, get me up-to-date first before I even get excited.

    Jonas Max Ferris: It is time to buy because fund investors took $30 billion out of their stock funds last week, just in a week. Most of that was in 401(k) s. They are always wrong. They took out that sort of money in the last crash. It doesn't mean it can't go down another 20 percent, what it means is three, five, 10 years out if you're planning on retiring it is going to be higher. They added money nine months ago. It's all you have to look at. And now they're pulling it out. Maybe they'll be right for a few months, but it's going to ultimately be a bad call.

    Gary B. Smith: Jonas spoke to sentiment and I agree with him. Toby spoke to valuations and I agree with him. I'll throw in one more thing from the chart side. Normally when you see the market being as oversold as it is, only about 10 percent of the stocks are above their 40-day moving average. It's time for a nice bounce. I think we'll have a sizeable bounce. Could we drift a little bit lower? Yes we could, but we're talking for the long term investor, I agree with both Toby and Jonas, I think now is a great opportunity to buy and that's what I'm doing.


    Gary B. Smith: SPY will be up 25 percent by the end of the year.

    Tobin Smith: AUY posts 50 percent profit by January.

    Jonas Max Ferris: MGC returns a 15 percent gain in one year.

    Gary Kaltbaum: AZO drives up 20 percent by 2012.