Monday, March 10, 2008

SIFMA at Wharton

I just returned from the Wharton School at the University of Pennsylvania. The Securities Industry and Financial Markets Association (SIFMA) is holding a one-week conference for its membership. They kicked off the event this morning with a panel discussion entitled "Wall Street Comes to Wharton." I was honored to take part in the discussion, which focused on the economy and the markets. Bob Stovall, Managing Director and Global Strategist at Wood Asset Management, hosted the panel. Other panelists included Sam Stovall, Chief Investment Strategist at Standard & Poor's; Randall Eley, President of the Edgar Lomax Company; and Michelle Girard, Managing Director and Senior Economist at RBS Greenwich Capital.

Housing prices got a lot of attention. All panelists agreed that prices will continue to fall for some time. However, Michelle pointed out that realtors are reporting a pick up in interest from buyers looking for bargains. Nonetheless, I said I was more concerned about the fact that the drop in prices is still accelerating. Although I am hopeful that prices will start falling at slower rates in the very near future, I expect overall housing prices to keep falling throughout 2008 and perhaps into 2009. I also warned that problems could spread in the commercial sector and banks could soon start announcing writeoffs of commercial mortgages.

Sam Stovall talked about historical trends and pointed out that it is rare for stocks to fall as much as they have without a meaningful recovery within a year while the Fed is aggressively cutting interest rates. Sam's point was that it is more risky to be out of the market right now than it is to be in it because stocks could rally strongly and unexpectedly. While I certainly believe stock prices could go lower in the short term, I am more confident that they will be at higher levels 3-5 years out. As a result, I would agree with Sam. Take advantage of strong sell-offs by doing some bargain hunting.

Randall Eley is a value manager who favors large-cap blue chip companies. He, too, has a bullish long-term outlook. Stocks he likes right now include Chevron (CVX), Bank of America (BCA) and Home Depot (HD).