In a recent Financial Sense Newshour podcast, Jeffrey Saut, the Chief Investment Strategist at Raymond James, made a very bullish case for US stocks over the long-term and said that slowing global growth has much less of an impact on the US than people think. He also addressed whether US markets are overvalued and reiterates his belief that we may only be halfway through a long-term secular bull market that started in 2009.
Here are a few excerpts from his interview that recently aired to our subscribers (click here for audio):
Can American companies continue to do well if the rest of the world is slowing down and you have a rising dollar? In other words, if I'm an international company like Coca-Cola where I get half of my sales and earnings from overseas obviously a strengthening dollar is hurting my bottom line.
“Yeah, that's a fact. Now in a lot of cases those companies hedge off their currency risk so it's not as impactful as it would be if they were unhedged. I would say this to the world slowdown: I believe it was some agency over the weekend, it might have been the World Bank, that actually lowered their outlook for the rest of the world but actually raised their economic growth outlook for the US. Goldman Sachs did a study here about a month or a month and a half ago where they drilled down into the impact a slowing rest of the world would have on the US and what they found is that for every half a percent slowdown in world GDP it impacts the US by less than 0.13%. So, the rest of the world slowing down is probably not all that impactful and the other note I would give you is that after travelling for two and a half weeks in November in Europe talking to portfolio managers, the irresistible lure of a rising US stock market combined with a rising US dollar is irresistible to European portfolio managers. All they wanted to talk about were US large cap stocks because they are underinvested in the US.”
“If you go and look at Germany right now, you have negative returns or negative yields six years out...So, to a professional money manager in Germany that has to have a portion of his portfolio in fixed income, to look over here at the US where you can get 3% on the 30-year or 1.8% on the 10-year with a rising dollar is on a relative basis fairly attractive relative to where German interest rates are right now. I, however, as a US based investor, since my stuff is measured in dollars and I get paid in dollars, I am much more interested in dividend paying stocks that increase their dividends by 10% or more a year than I am in fixed income at this stage of the market cycle.”
“I would put this in the construct of a secular bull market and secular bull markets, if you go back and study history, tend to last on average 15 years and they tend to return about 16% per year. So if you figure we're almost six years into this as measured from the March ‘09 lows, again, if past is prelude, it suggests you've got another 8 or 9 years left in this thing and if you compound that out at 16% per year, you come up with a 4200+ price target on the S&P 500. So, I think pullbacks are still meant for buying. I think you do have to try and determine when you should be playing hard and when you should not be playing so hard but I think the equity markets are working into a pretty good buy spot sometime in February or maybe early March.”
“If you're looking at the Cyclically Adjusted PE, then [the market] does look expensive; however, if you had invested on nothing but the CAPE, the Shiller Cyclically Adjusted PE, you wouldn't have bought stocks for the past six years, so I don't have much use for an indicator that would've kept me out of the markets for the past six years. I think if you use a normal regular simple PE ratio—we’re trading at about 15 times this year's S&P 500 bottom-up operating earnings estimates—so if that estimate is anywhere near the mark, you are actually below the historic median PE ratio of 15.5 times, which the S&P has sported since the 1920s. So the bears always pull out the Shiller Cyclically Adjusted PE ratio, but if you look at the markets through many of the other valuation lenses, they're not all that expensive…”
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