For the New Bulls, It's Lonely at the Bottom
The stock market's continued plunge has understandably thinned the ranks of prognosticators who see better times coming soon. But a couple of bulls have been sighted in the pundit-o-sphere. One is Douglas Kass, founder and president of Seabreeze Partners Management, which runs several hedge funds. Kass, known for successfully shorting real estate and financial stocks, has just opened a new fund to profit from buying opportunities. "I think we're at the beginning of the end of the bear market," he says. "The path still looks icy, but I can see in the not-too-far distance the bartender standing in sunshine and mixing piña coladas."
O.K., that's a minority view. But for Kass, that's nothing new. When he warned of a housing bubble back in 2005 and 2006, he was berated across the airwaves and the Internet. And 15 months ago, when he began to go "very negative" on the economy, the stock market, and credit markets, "I was [treated like] Cassandra," he says. "Today," he adds, "the same people who didn't see this coming have embraced total negativity."
Another lonely bull is Bob Doll, chief investment officer for equities at BlackRock (BLK), the $1.3 trillion money management firm now owned mainly by Bank of America (BAC) and PNC Financial Services Group (PNC). Like Kass, Doll sees some gyrating as the market finds its floor. But he predicts that the S&P 500-stock index will be up 15% or more by the end of 2009. One key sign that stocks will bottom soon, says Doll: The amount of cash in money market funds now exceeds 40% of the stock market's total value—an all-time high. "Historically, cash reaches its maximum when the market hits its bottom," he says. Doll is amused to be considered a bull. "I think I'm being cautious," he says.
Balance Sheets Bulging with Cash
Cash is the new black at big corporations, many of which accumulated heaps of it last quarter (table). Some are playing extreme defense: General Electric (GE) has amassed a $48 billion hoard to make the company "more safe and secure in this environment," says spokesman Russell Wilkerson. Others are going on the offensive. Cisco Systems (CSCO), whose official filings say its recently raised cash will be used for "general" purposes, is widely believed to be looking for deals. Verizon (VZ) has used much of its pile to digest Alltel Wireless, making it the nation's biggest cell-phone player. Meanwhile, DuPont (DD), Google (GOOG), IBM (IBM), and Qualcomm (QCOM) say they are considering an array of uses for their cash. As for Apple (AAPL), CEO Steve Jobs pointed out to analysts last October that cash gives him the "ability to invest through this downturn." The last time Apple did that, in the dot-com bust, one result was the iPod.
Shop at the Company Store, Please
As Japan stalls out, some Japanese companies are asking employees to consume where they work. Electronics giant Panasonic (PC) kicked off its campaign in February, asking 10,000 midlevel and senior managers to spend at least $1,050 on its products by July 31. At Toyota (TM), bracing for its first annual loss in nearly five decades, 2,200 managers are being encouraged to buy new cars. And tech conglomerate NEC's president, Kaoru Yano, has urged employees to demonstrate their loyalty via their wallets in a message on NEC's internal Web site. It's not a bottom-line tactic. Toyota's selling an extra 2,200 cars—it sold 8.9 million last year—couldn't plug the $3.9 billion loss the company projects for the fiscal year ending in March. But such buy-at-the-office programs create "a real sense of crisis for employees," says Chiaki Nakano, a management professor at Reitaku University near Tokyo. "That's very important in Japan when you are trying to change the company from the inside."
Tiny Homes for Tough Times
In this brutal housing market, homebuilders are thinking smaller. And Los Angeles-based KB Home (KBH) is thinking really small: 880 square feet. It's offering such compact two-bedroom, one-and-a-half-bath houses for $64,000 in three suburban Houston subdivisions. The idea is to compete with low-cost, bank-owned properties, which account for one of every three homes sold in Houston (and nationally). If the houses sell, KB will build them in other cities, targeting renters in all markets. The houses will yield higher-than-usual margins, KB says, because they have siding instead of brick and Formica countertops rather than stone. Bathrooms are lined up vertically to save copper pipe. Will the homes lure renters anticipating further home-price declines and a weak job market? KB chief Jeffrey Mezger says the mini-houses are a return to his industry's roots in post-World War II communities such as Levittown, N.Y., where 800 square feet was a typical home size. "Any time there's been an age of exuberance and then the economy turns," he says, "people get back to 'What do I need?' rather than 'What could I buy?'"