Chris Cordaro, one of the most respected investment managers in the New York area, thinks that one good place to invest in now is emerging-market stocks. Reasons: (1) their prices have dropped sharply, (2) they seem dramatically undervalued, (3) the savings rate in undeveloped countries has been high, so people have the spare money to stimulate their economies—whereas the savings rate in the U.S. has been puny, (4) and their populations are relatively young.
Surprisingly, Cordaro isn’t so sanguine about U.S. small caps, even though small caps historically have bounded back robustly after a recession. Two reasons: They were “richly valued” before the recent nosedive, and they didn’t decline all that much during the nosedive.
Cordaro, chief investment officer for RegentAtlantic Capital in Morristown, N.J., recently told an investment group in Ridgewood, N.J., that he also likes junk bonds (but not so much that he would recommend that investors go whole hog). “Today you’re handsomely compensated for buying high-yield bonds,” he says. Even if their default rate soars, because of their generous yields you will still make money.
He also likes investment-grade bonds, but not long-term Treasuries, which have been so much in demand that their yield is in the basement. And he has kind words about real-estate investment trusts: Their yields are comfortably above the yields of 10-year Treasuries.
U.S. stocks in general look “like bargains,” he went on, but “there are better opportunities” – meaning, emerging-market stocks. Still, he is positive about U.S. technology stocks. One he mentioned: Intel (INTC, Financial). Not only does it have a lot of cash, but its sales will perk up when the economy does (which may occur as late as 2010).
Cordaro warned that investors who are feeling as pessimistic as Chicken Little may eventually regret it: With interest on Treasuries so low, you may play it too safe and -- thanks to inflation -- wind up losing purchasing power. “Not many people are rich enough to play it too safe.”
As for commodities, “It’s difficult to get excited about them.”
Cordaro wasn’t much worried about a possible depression. “The Federal Deposit Insurance Corporation is our best defense,” he said. “During the Great Depression there were runs on banks—and thanks to the FDIC, there’s a big difference now.”
Other differences he cited: then the government restricted the money supply, now there’s “a flood of liquidity”; then taxes were increased, now more tax relief is expected; then wages were inelastic, but now wages are elastic.
What about the threat of inflation, what with all the forthcoming government spending? The U.S., he said reassuringly, can then pay back its debt with inflated dollars. What if Chinese stops buying our Treasuries? Actually, China doesn’t want our country “to go down the tubes” — or else the U.S. will stop buying China’s goods.
In general, Cordaro and his firm are overweight emerging market stocks and international small caps; neutral on global large stocks; and underweight U.S. small caps. They are overweight short-term U.S. bonds and (hedged) international bonds; neutral on U.S. high-yield bonds; and underweight inflation-indexed bonds. As for alternative investments, they are overweight real estate and hedging strategies, and underweight commodities.
Cordaro is a Chartered Financial Analyst as well as a Certified Financial Planner.
By Warren Boroson
Surprisingly, Cordaro isn’t so sanguine about U.S. small caps, even though small caps historically have bounded back robustly after a recession. Two reasons: They were “richly valued” before the recent nosedive, and they didn’t decline all that much during the nosedive.
Cordaro, chief investment officer for RegentAtlantic Capital in Morristown, N.J., recently told an investment group in Ridgewood, N.J., that he also likes junk bonds (but not so much that he would recommend that investors go whole hog). “Today you’re handsomely compensated for buying high-yield bonds,” he says. Even if their default rate soars, because of their generous yields you will still make money.
He also likes investment-grade bonds, but not long-term Treasuries, which have been so much in demand that their yield is in the basement. And he has kind words about real-estate investment trusts: Their yields are comfortably above the yields of 10-year Treasuries.
U.S. stocks in general look “like bargains,” he went on, but “there are better opportunities” – meaning, emerging-market stocks. Still, he is positive about U.S. technology stocks. One he mentioned: Intel (INTC, Financial). Not only does it have a lot of cash, but its sales will perk up when the economy does (which may occur as late as 2010).
Cordaro warned that investors who are feeling as pessimistic as Chicken Little may eventually regret it: With interest on Treasuries so low, you may play it too safe and -- thanks to inflation -- wind up losing purchasing power. “Not many people are rich enough to play it too safe.”
As for commodities, “It’s difficult to get excited about them.”
Cordaro wasn’t much worried about a possible depression. “The Federal Deposit Insurance Corporation is our best defense,” he said. “During the Great Depression there were runs on banks—and thanks to the FDIC, there’s a big difference now.”
Other differences he cited: then the government restricted the money supply, now there’s “a flood of liquidity”; then taxes were increased, now more tax relief is expected; then wages were inelastic, but now wages are elastic.
What about the threat of inflation, what with all the forthcoming government spending? The U.S., he said reassuringly, can then pay back its debt with inflated dollars. What if Chinese stops buying our Treasuries? Actually, China doesn’t want our country “to go down the tubes” — or else the U.S. will stop buying China’s goods.
In general, Cordaro and his firm are overweight emerging market stocks and international small caps; neutral on global large stocks; and underweight U.S. small caps. They are overweight short-term U.S. bonds and (hedged) international bonds; neutral on U.S. high-yield bonds; and underweight inflation-indexed bonds. As for alternative investments, they are overweight real estate and hedging strategies, and underweight commodities.
Cordaro is a Chartered Financial Analyst as well as a Certified Financial Planner.
By Warren Boroson
