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Brett Arends' ROI
Feb. 7, 2011, 12:00 a.m. EST
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Support Green Bay; annoy the rich
First Take "º
Obama asks business to side with America
By Brett Arends, MarketWatch
MIAMI (MarketWatch) "” Markets are up. The economy's improving. Everyone's happy again.
But one high-flying fund manager is striking a note of caution.
International Value Advisers' Charles de Vaulx, whose mutual funds are about to close their doors to new clients, is holding a lot of his portfolio in cash right now "” a hefty 16% of IVA Worldwide and a remarkable 21% of IVA International.
When I asked him what assets he likes in these markets, de Vaulx said it would be better to list all those he doesn't.
Principal Global Investors' chief economist weighs in Egypt, the U.S. economy and inflation concerns. Dow Jones Wealth Adviser's Veronica Dagher has the interview.
"People should not own bonds," he said, "especially not Treasury bonds." De Vaulx doesn't like corporate bonds either "” not even high-yield ones, which often behave more like equities than bonds. He believes government borrowing is likely to unleash inflation, and bondholders are being little compensated for the danger.
Among stock markets, de Vaulx commented, "avoid emerging markets like the plague." They've risen too far. And "avoid most commodities "¦ with the exception of oil and natural gas."
"I would avoid also U.S. small-cap stocks," he added. Also, most European stocks are no bargain either.
It's quite a don't-buy list.
De Vaulx is even edgy about gold. He has been holding some gold in his portfolios for years, but recently cut it from 6.1% to 4.5% of the fund. The reason? It wasn't behaving like gold anymore, he said. It was rising along with everything else.
The classic reason to own gold is because it isn't correlated to your other investments. De Vaulx warns that it may face headwinds if real interest rates "” in other words, interest rates minus inflation "” rise.
Overall, amid the recent optimism, de Vaulx remains pretty cautious about the economy. He notes that consumer spending is up in the United States partly because a lot of people have lost their homes in foreclosure, have written off the debts and are now shopping again. One might add that many are also spending money by borrowing.
It's hardly enough to make you cheer. "I don't see genuine job creation," he said.
So where should we put our money? De Vaulx has two suggestions.
Think big in America, and think small in Japan.
In the United States, he said, go for the big company stocks. "It's a bifurcated market. Never have large-cap, quality stocks been as cheap, in relative terms, compared with small caps and midcaps."
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money," has just been published by John Wiley & Co.
In a conciliatory but unapologetic speech, President Obama challenges big business to side with America by investing in the future and hiring Americans, writes Rex Nutting.
12:55 p.m. Today12:55 p.m. Feb. 7, 2011
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