Barton Biggs: “Valuations Are Not Stretched”

Key Points:
On the two year market bull run:”I think the market at the bottom in March 2009 was in a panic condition. It appeared that the world economy was slipping into recession and deflation and it didn’t turn out that way. The so-called authorities did some right things and the global economy has recovered. It’s still fragile, but it has recovered. Stocks have taken out the panic, end of the world scenario.”

On when the fear leaves the market:
“The history that the fear leaves the market very slowly and that’s why the market for the last year, year and a half has sort of been grinding its way up. It hasn’t made dramatic progress. It made dramatic progress in the last 6-9 months of 2009.”

On why he doesn’t think valuations are stretched:
I don’t think valuations are stretched because the U.S. has about 13 times forward earnings as produced by IBESts and Europe it’s about 11 times. The emerging markets are about 11.8/12 times. Those earnings estimates are probably trade of four weeks old and don’t reflect the stronger numbers that have come through since then. I don’t think stocks are expensive here.

On the likelihood of another financial crisis:
“There’s another financial crisis on the horizon, but there’s a lot of miss and of fog out there between what you might be able to see and that crisis. I am willing to bet at this point that we will not have that kind of crisis.”

“I think that for those things to happen, for house prices in the U.S. to fall another 10-15%, which is what would be required for a real crisis–the unemployment rate is already coming down. And the sovereign debt crisis in Europe, I am hopeful the Europeans will get their act together in late March. There is always an end of the world scenario. I think it is usually right to bet against it until proved otherwise.”

On corporations starting to put cash into the market:
“Capital spending in the U.S. is increasing very nicely. In fact, impressively. Corporations are buying back more of their own stock. Corporations are making acquisitions for cash. They are doing it, but it is trauma and it takes awhile to get over.”

On where investors who are getting back into the market should be looking:
“I think they should be looking in the U.S. in big-cap, high- quality stocks–particularly tech stocks. They should be looking in Asia and markets like china, Indonesia, Hong Kong, areas like that.”

“Dividend-paying blue chips are a great way to go. The best way to go.”

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