Stocks May Rally 10% After Fed's Announcement on Easing, Barton Biggs Says
Oct. 29 (Bloomberg) -- Barton Biggs, co-founder of Traxis Partners LP, discusses the potential implications of Federal Reserve quantitative easing for stocks and the prospects of a bubble in emerging markets. Biggs, speaking with Betty Liu on Bloomberg Television’s “In the Loop,” also discusses his investment strategy. (Source: Bloomberg)
U.S. stocks may gain 10 percent should the Federal Reserve announce a program of asset purchases known as quantitative easing, and emerging-market shares will keep rising, according to hedge-fund manager Barton Biggs.
“The conventional wisdom is the markets are going to probably sell off,” Biggs, managing partner of New York-based Traxis Partners LLC, said in an interview today with Betty Liu on Bloomberg Television’s “In the Loop.” Investors may in fact get a “surprise” with “another 10 percent rally.”
Fed policy makers meet Nov. 2-3 to consider steps to boost an economy that’s growing too slowly to reduce unemployment near a 26-year high. The central bank has asked bond dealers and investors for projections of central bank asset purchases over the next six months as it seeks to gauge the possible impact of new efforts to spur growth.
The S&P 500 has risen as much as 16 percent from this year’s low in July as more than 70 percent of its companies beat the average profit estimate for the sixth straight quarter, the longest streak in Bloomberg data going back to 1993, and speculation the Fed will buy bonds to stimulate the economy. The benchmark index for U.S. equities fell less than 0.1 percent to 1,183.26 as of 4 p.m. today in New York.
Emerging Markets
The MSCI Emerging Markets Index of equities in 21 nations has gained 29 percent since its 2010 low in May, and surged 143 percent since October 2008, when it reached the weakest level in four years. The Shanghai Composite Index has rallied 26 percent since reaching its 2010 low on July 5, while Brazil’s Bovespa index has jumped 21 percent since May 20.
“We are only halfway along the way to a gigantic eventual bubble in the emerging markets,” Biggs said. “But we are not there yet, the fundamentals are too strong, too good, too much growth, and the valuations are still attractive.”
It would be a mistake for government stimulus measures to stop because the world economy is still in a “very dangerous position,” the 77-year-old investor said.
“The Fed is doing the right thing,” he said. “Our government is not doing the right thing. We are still yammering away about fiscal austerity. We need more economic growth, and we need to make sure that we don’t tip ourselves and the world back into another recession. The price of that is going to be a bubble at some point.”
Budget Deficit
The U.S. government posted its second straight annual budget deficit in excess of $1 trillion as lingering unemployment constrained tax revenue. The shortfall totaled $1.294 trillion in the fiscal year ended Sept. 30, second only to the $1.416 trillion deficit in 2009, the Treasury Department said Oct. 15. President Barack Obama formed a commission in February charged with presenting a plan by Dec. 1 on how to reduce deficits over the next decade.
The U.S. economy grew at a 2 percent annual rate in the third quarter as consumer spending climbed the most in almost four years, Commerce Department data showed today in Washington. Central bankers meeting next week are concerned growth is too slow to lower an unemployment rate stuck near 10 percent and are seeking ways to prevent a drop in prices that would hurt the recovery.
Biggs said the “most attractive plays” for investors are technology stocks and pharmaceuticals. He said oil-services companies have fallen too much. The S&P 500 Pharmaceuticals, Biotechnology & Life Sciences Index gained 1.5 percent this year through yesterday, trailing the 6.2 percent advance in the main index for U.S. equities. Technology companies rose 5.7 percent while the Philadelphia Oil Service Sector Index rallied 7.7 percent year-to-date.
Sold, Bought in July
Biggs said in a July 2 interview that he’d sold stocks aggressively, including most of his U.S. technology holdings, cutting his equity holdings to about 35 percent of his assets. Three weeks later, he told Bloomberg News that shares made up 75 percent of his Traxis fund as the S&P 500 headed for a 6.9 percent July rally.
Traxis gained 38 percent in 2009 after Biggs bought shares as the S&P 500 fell to a 12-year low in March. He said at the beginning of September 2010 that investors shouldn’t be underinvested in stocks as he got more bullish on the world economy.
To contact the reporters on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net; Betty Liu in New York at bliu17@bloomberg.net.
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
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