The four horsemen of the market - MarketWatch

Summary:
Views of Jeremy Grantham, Bob Rodriguez, John Hussman and Steve Leuthold. Grantham believes the market fundamentals are very bad, in for two years of disappointment. No time to take risks. Reason is global economic growth is slowing under the weight of increasingly illiquid credit markets and inflationary pressures. Slashes corporate earnings, resulting in poor to middling for equities worldwide. Stocks in both developed and emerging markets are "substantially overpriced." Also concerned about sputtering growth of China. Rodriguez is on "buyer's strike" regarding high-quality bonds with maturities greater than two years. Believes that longer-term Treasury yields aren't substantial enough to compensate investors for inflation's eroding impact on purchasing power. Continues to focus on "caution and capital preservation." Hussman said he's looking for another shoe to drop once investors recognize that the U.S. has not avoided recession. U.S. is mired in recession, and once investors realize that earnings expectations are overblown, stocks will take another major hit. Leuthold is pretty positive. Believes bottom has been made. Economy is going to start showing some positive signs sometime in the first half of 2009. Iis getting in early: loading up on shares of biotechnology and alternative-energy companies in particular. (Published: 29/08/08)

Notes:

• Jeremy Grantham
• chief investment strategist at GMO
• highly regarded Boston-based manager of institutional and high-net-worth accounts
• makes buy and sell decisions with a combination of computerized technical analysis and old-fashioned spadework
• but: nowadays, digging for attractively valued stocks is mostly hitting rocks
• "The fundamentals have turned out to be worse than I had thought. My advice would be, don't take any risk."
• i.e. in this market, don't be a hero; live to fight another day
• reason:
• global economic growth is slowing under the weight of increasingly illiquid credit markets and inflationary pressures
• weaker growth slashes corporate earnings
• since stock prices are tied to earnings, the outlook for equities worldwide is poor to middling
• "Stocks in both developed and emerging markets are "substantially overpriced," with the possible exception of high-quality blue-chip companies that have strong, defensible global franchise."
• "I underestimated in almost every way how badly economic and financial fundamentals would turn out. Events must now be disturbing to everyone, and I for one am officially scared!"
• biggest fears: that "the whole global economy will be weaker than the market expects for quite a considerable time."
  
• How long? "I would guess at least two years of sustained disappointment."
• particularly uneasy about China
• leading engine of world growth seems to be sputtering
• "I worry on behalf of the global economy at the consequences of China stumbling, the whole level of global imports and exports would start to drop."

• Bob Rodriguez
• manager of FPA Capital Fund and bond-focused sibling FPA New Income Fund
• "He's not naturally the most optimistic person you'll ever chat with. Even in the best times he's looking for the gray lining in a silver cloud. That's one of the reasons you invest with him."
• on a self-proclaimed "buyer's strike" regarding high-quality bonds with maturities greater than two years.
• believes that longer-term Treasury yields aren't substantial enough to compensate investors for inflation's eroding impact on purchasing power
• wants to get 5% on 10-year Treasurys before venturing back
• recently yielded 3.8%
• "We will not provide long-term capital to borrowers with unsound and unwise business management practices at unattractive real yields. We require a higher level of compensation -- i.e. more yield, for these potential risks."
• continues to focus on "caution and capital preservation"

• John Hussman
• runs two portfolios: stock-focused Hussman Strategic Growth Fund and bond-centric Hussman Strategic Total Return Fund
• both are run with a careful eye to valuations and broad economic conditions that dictate the degree of market risk that Hussman is willing to accept
• for Hussman nowadays, risk-taking doesn't offer much reward
• "We're fully hedged"
• meaning that a portfolio won't be affected, positively or negatively, by market gyrations
• reason: Hussman said he's looking for another shoe to drop once investors recognize that the U.S. has not avoided recession
• "The stock, bond and foreign-exchange markets continue to trade essentially on the theme that the global economy is weakening, but that the U.S. has dodged a recession."
• Investors' consensus is mistaken, Hussman contends
• "U.S. is mired in recession, and once investors realize that earnings expectations are overblown, stocks will take another major hit."
• "The potential downside could be abrupt, leaving little opportunity to make defensive changes after the fact"

• Steve Leuthold
• flagship funds include Leuthold Core Investment Fund and sibling Asset Allocation Fund
• has offered targeted portfolios with catchy names like the bear-market Grizzly Short Fund (GRZZX) and the bottom-fishing Undervalued and Unloved Fund (UGLYX)
  
• convinced that the U.S. economy is in recession
• but: points out that the stock market typically bottoms around the midpoint of the downturn
• reckons the economy entered recession toward the end of 2007
• the extensive valuation criteria he uses tell him there's now light at the end of the tunnel
• "The bottom has been made. The economy is going to start showing some positive signs sometime in the first half of 2009."
• is getting in early
• loading up on shares of biotechnology and alternative-energy companies in particular
• keeping a modest amount in oil drillers and natural gas producers