Bears and bulls debate in Naples

Bears and bulls debate in Naples

STOCK MARKET by Jean Gruss

Money management is a pretty staid business. That is, until the markets gyrate wildly as they have recently.

That's when events sponsored by the CFA Society of Naples get exciting. The group of financial analysts gathered in late January at the Naples Beach Hotel & Golf Club to hear the market forecast for 2008, amid unpredictable ups and downs in the market.

"Run as far and as fast from the business cycle as you can," counseled Jeff deGraaf, senior managing director of International Strategy & Investment.

DeGraaf, who uses computer models to detect investment trends, says investors should select stocks that are less vulnerable to economic downturns, such as utilities, health care and consumer staples.

"We're in a bear market, as far as we're concerned," says deGraaf.

Beth Ann Bovino, senior economist with Standard & Poor's, told the group she estimates the chance of a U.S. recession at 50%. She noted that it's unlikely to happen as long as U.S. exports continue to be strong. "We think global growth will hold up," she says.

Of particular interest to Florida investors, Bovino says employment will continue to slow and commercial-real estate prices will decline. "We don't think housing will start to recover until the end of 2008," she says. Some of that will be offset by a surge in foreigners traveling to the U.S. because of the dollar's weakness.

John Augustine, chief investment strategist for Fifth Third Asset Management, says the Federal Reserve can help avert a U.S. recession by lowering short-term interest rates. "We're glad the Fed got the memo," he joked.

Augustine says the market will have bottomed when investors shrug off bad news and don't send stocks down. "We're concerned investors will miss out," Augustine says. "When it turns, it's going to do it rapidly."

Currently, Augustine is recommending large-company stocks such as Coca Cola and Johnson & Johnson, but says Fifth Third may start recommending smaller companies if the Federal Reserve cuts rates aggressively. He says a recent analysis showed 79 stocks yielding more than the 10-year Treasury note, indicating some stock bargains.

Tommy Huie, president and chief investment officer with M&I Investment Management Corp., agrees that any rebound in the market will be sharp and quick. "I don't think we're too far from the bottom," he says.

In particular, Huie says he's cautiously scouting opportunities in the out-of-favor financial sector, betting that a recovery is at hand in the next three to six months. Still, the depth of the financial crisis is unknown and Huie wonders whether financial companies have written off all the losses so far. "You hope the kitchen sink has been thrown in, but you don't really know," he says.

Meanwhile, Huie says there are opportunities in fixed income, such as high-quality corporate bonds, municipal bonds and bonds backed by tobacco settlements with the states. He's avoiding real estate.