1. Peter Schiff
Peter Schiff, chief executive of Euro Pacific Capital, said the worst investment now is bonds, because it’s the one asset that hasn’t been crushed. The second-worst option is cash, because the Fed insists that inflation is not a threat, he said.
Among stocks, Schiff said he’s focusing on multinationals and exporters, areas that have some insulation to a U.S. economy that he believes is heading for a crisis.Schiff is known for having called the 2007 financial crisis, and has been a vocal critic of artificially low interest rates set by the Fed.
Earlier in the month, Euro Pacific’s asset management arm launched its EP Strategic U.S. Equity Fund , which focuses on U.S. businesses that stand to benefit from increasing sales in overseas markets.
Schiff said the Fed can be in denial about inflation for only so long, and eventually will have to raise interest rates.
“They’ll keep [rates] low until the market forces them,” Schiff said. “It’s like trying to hide it when you’re pregnant, you can only do it for so long.”
He added: “If we get to 2014 and we don’t have a crisis, the Fed will keep rates low but at some point it won’t matter because we won’t have any money because we’ll be paying $30 for a carton of milk.”
2. Harry Dent Jr.
Harry Dent Jr., who heads research and forecasting firm HS Dent, said the recovery in the economy and markets is “artificial” in that it’s being fueled by quantitative easing measures in the U.S. and Europe.
In fact, Dent contended, the Fed isn’t about to take the economy off life-support because that would put some $42 trillion in private U.S. debt at risk.Dent notes that asset classes are rising in tandem, when normally stocks and bonds have an inverse relationship. If the economy is indeed recovering, then it shouldn’t require the Fed’s help, he said.
Dent uses demographics to inform his economic and market forecasts. He’s known for a prediction in the 1980s that Japan’s economic slowdown would last more than a decade, based on population trends, and cautions that the U.S. is setting itself up for a similar economic malaise.
Aging baby boomers are no longer fueling U.S. economic growth, he said, and younger generations can’t keep the momentum going.
“The government and most economists are in denial when the largest generation is spending less and paying down their debt,” Dent said.
If you have to be in the stock market, Dent suggests hedging stocks with the CBOE Volatility Index. The best way to play a bubble is to realize it’s a bubble and be ready to get out quickly, he said.
For the U.S. market, Dent said he expects a near-term selloff followed by a summertime rally due to another round of quantitative easing that could last until the presidential election. After that, Dent sees a market peak in 2013 or 2014 and then another crash.
3. A. Gary Shilling
Economic consultant A. Gary Shilling said stocks are vulnerable because the U.S. consumer is worn out, and that puts businesses, and the broader economy, on a weak footing.
“If the consumer pulls back, there’s nothing else in the economy that can sustain growth, and if the consumer retrenches we have a recession,” Shilling said.Shilling has long predicted that Fed measures to stimulate the economy will fall short and believes that the global economy is in a long period of deleveraging marked by anemic growth.
Corporate profits are not driving earnings and stocks, Shilling said — corporate cutbacks are. Indeed, he added, U.S. businesses are in a tricky spot where they can no longer rely on cost cutting to boost the bottom line.
“U.S. businesses have been doing this since 2000 and you’ve had consumers willing to borrow to support it, but that’s not the case anymore,” he said. “We no longer have a cushion of people willing to borrow to support corporate profits.”
Now, businesses need to hire more people to increase productivity, he said. The only problem with that is that hiring slices into profits.
For stock investors, Shilling recommends a focus on companies that pay a high dividend, particularly in utilities and consumer staples. He also favors North American energy stocks with natural-gas pipeline assets.
Outside of equities, Shilling likes long-term Treasurys for their potential appreciation rather than yield, and the U.S. dollar against the euro and the yen.
4. Charles Biderman
Charles Biderman, who heads TrimTabs Investment Research, said he’s bullish on stocks given that the Fed’s cheap money is levitating prices. But, he added, at some point stocks are going to drop.
A day will come, Biderman said, when the Fed will pull the plug on cheap money. Then he sees the Dow tumbling to financial crisis lows in the 6,000 range. For clues, watch what companies are doing with their cash, he said.Biderman, who approaches stock prices as a function of liquidity instead of fundamental value, expects the U.S. market to slow considerably in the second half of the year, and that the Fed will try to stimulate investment with QE3.
“If buybacks slow,” he said, “that would be the time to start getting out.”
Biderman manages the AdvisorShares TrimTabs Float Shrink ETF . The top five holdings in the $8.3 million fund include mattress maker Tempur-Pedic International Inc. , industrial adhesive and coating maker Nordson Corp. , motor home and bus manufacturer Thor Industries Inc. , Home Depot Inc. , and hotel chain Wyndham Worldwide Corp. . By sector, the ETF is overweight on consumer cyclical, health-care and technology stocks.
5. Robert Prechter
Prechter maintains there are parallels between today’s U.S. economy and the Great Depression. This time, a deflationary spiral threatens the nation’s health.Elliot Wave’s Prechter is the most bearish of the five strategists. He said investors should shun every asset class that’s popular now, including stocks, commodities, precious metals and bonds.
As for stocks, Prechter said individual investors are tapped out and that most of the market activity is driven by institutional investors. The market’s rebound since 2009, he said, is a classic bear market rally.
He added: “When investors are afraid again, and when stocks are cheap again, that will be the time to buy.”
Wallace Witkowski is a MarketWatch news editor in San Francisco.
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