Guggenheim’s Minerd Sees More Pain for Equities in Longer Term

Stock investors should be wary of near-term rallies, as the market slide probably has further to go, according to Scott Minerd, global chief investment officer at Guggenheim Partners.

After a rebound in falling equity markets today, “longer term, neither fundamental nor technical data support that we have reached the levels of capitulation which would be associated with the end of a market correction,” he wrote today, citing levels of the Chicago Board Options Exchange Volatility Index. “The market will try to find some short term footing, but I would not be fooled. I doubt we have found a bottom yet, and buying risk assets now would be like catching a falling knife: if you are successful, you are likely to get hurt and quite bloody in the short run.”

Guggenheim’s CIO, who helps oversee $240 billion in assets, called for a stock-market correction last week, saying in a Twitter post that the Dow Jones Industrial Average might not find temporary support until 16,000. The index dropped as much as 6.6 percent to 15,370 before climbing back to 16,290 as of 12:25 p.m. in New York, following selloffs in Europe and Asia.

Yields on bonds tied to energy companies rated below investment grade will widen as much as 300 basis points, and other equities and higher-quality credit assets will sell off, too, according to Minerd.

“The source is the massive misalignment of exchange rates, the source of which finds its roots in quantitative easing,” he wrote. “Strains on the terms of trade between countries which have devalued and those which have not have built to the point that perpetuating these disparities is destabilizing to the countries which have staunchly fought devaluation,” he wrote in an Aug. 23 report, citing the yuan versus the dollar.

King Cash

More than $5 trillion has been erased from the value of stocks worldwide since China’s central bank devalued the yuan on Aug. 11, which deepened concerns that a malaise will further weigh on the world’s second-biggest economy. A global selloff in riskier assets quickened Monday as commodity prices sank to a 16-year low and emerging market currencies weakened.

The large industrial nations in the Group of Seven and China won’t slide into recession because their central banks will print money to prop up asset prices and “temporarily spur economic growth,” Minerd wrote.

“I would suspect that this will all climax by late October,” he wrote. For now, “more downside risks remain,” he said, advising investors that “cash is king, Treasuries will outperform and patience is a virtue. In time there will be great opportunities, but not just yet.”

Treasury Yield

Minerd said last week the yield on the benchmark 10-year Treasury may fall to 1 percent. Today it traded at 2.02 percent in the early afternoon after dropping to about 1.9 percent, according to Bloomberg bond trader prices.

Minerd is one of four managers on the $1.7 billion Guggenheim Total Return Bond Fund, which has returned 1.7 percent this year, beating 94 percent of comparable funds, according to data compiled by Bloomberg. Over three years, annualized returns of 5.7 percent have put it in the top percentile against peers.

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