Read a terrific interview in Barron’s yesterday with Joe Rosenberg, Chief Investment Strategist at Loews, a New York conglomerate controlled by the Tisch family. The point blank question was for his views on the government bond market. Response: “I see no value whatsoever. With the two-year Treasury yielding under 2%, you might as well keep your money in cash or go out and enjoy it, because you are not getting a return on an after-tax basis.”
Ok, that was a lay up, but the fact is, I’ve seen NBA players miss lay ups. The response to the next question was even better.
Ques: You have some ideas on social security?
Answer: “If the government thinks it can fund Social Security with 4% government bonds, it’s dreaming. It’s a great time to start funding Social Security with stocks. The government ought to take advantage of the low yield on Treasuries be selling debt at 3% or 4% and buying the S&P 500, which has an earnings yield of 7%. Large corporations and states fund their pensions with equity. Why shouldn’t the federal government?”
Now you have to appreciate a guy who has a strong opinion. I couldn’t agree with him more, especially since I am a 40 year old working stiff who thinks the likelihood of the social security trust fund solvent in 25 years is a thousand to one long shot at best.
Plus, we have a smart guy talking about the earnings yield of the stock market! We’ve opined in these pages in the past about the attractiveness of stocks over bonds when comparing the earnings yield. Joe talks about a 2% treasury on the short end of the curve, but we’ve discussed a 3.65% 10-year Treasury as having little value, especially relative to the S&P 500.
Joe makes a strong argument for long term equity investing, and reinforces the notion that now is not a time to panic out, but to stay committed to your long term wealth accumulation plan. In fact, he argues that the present environment is one of opportunity versus risk, and the winning trade will be in equities, and not fixed income.
Speaking off opportunity, the cover story of this week’s Barron’s issue (titled: Giddyup) was a spotlight on Wells Fargo Bank and why Warren Buffett had purchased additional shares recently and how his stake had grown to 9+%. Here again, we have a large institutional type investor buying shares of a financial stock, when almost universally, we read about the terminal condition of banks and consumer oriented companies. Why would smart money man Warren Buffett invest in a so-called near death bank stock? Incidentally, one of Joe Rosenberg’s “picks” discussed in his article was about a bullish bet on Target (TGT), a stock in another massively out of favor sector. So we have two credible individuals buying shares in unappealing sectors at the moment, are you willing to bet against them?
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