Barton Biggs Thinks The Worst Is Over

Barton Biggs, formerly the global chief investment strategist at Morgan Stanley and now managing partner of the $1.7 billion Traxis Partners hedge fund in New York, feels good about the stock market.

Here are some of his comments to the Journal last weekend:

Conventional wisdom is that the market will test its lows, and go lower again. A really serious bear like George Soros thinks we’ve seen just the first part of the bear market. I’m nervous, but my intuition tells me that after this consolidation is over, the next move will be up, not down.

Psychology is involved here. I like the fact that the market is worried. I like that The Wall Street Journal runs articles about that. That’s all good. But the puke point has been reached, in March. Because of the problems we’re living under, the market should be in a trading range for the rest of the year, between 1250 and 1550 in the S&P; 500.

If the Federal Reserve has made its last rate cut, that’s bullish. After that has happened in the past, the market on average was up 5% after three months and 12% after six months. The price to be paid for this — it saved the U.S. banking system from subprime peccadilloes — is more inflation. But it won’t be catastrophic, 3% to 5% in core inflation.

Meanwhile, we are close to the bottom in terms of new-home sales and construction. That’s a definite plus for the economy.

Then we have a huge amount of liquidity on the sidelines, waiting to be invested. It has been increased by all the buybacks. Add stock-repurchase money to dividends, and you have a 5.5% yield on invested funds. Incredible.

U.S. stocks are the cheapest major asset in the world. The top 50 stocks in the S&P; 500 are cheap. Will you get rich owning those stocks? No. Will you get richer? Yes.

As oil stops going up, technology stocks will go up. Companies have been underspending on tech for the last few years, and that will change. Tech providers will see earnings grow, and so they will outperform the market.

That’s precisely why we’re tech-heavy in The Kelly Letter now.

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