Despite a generally bad year, stock markets have been rallying lately, with the S&P 500 up 8 percent over the past month, and the Nasdaq up 11 percent over the same period.
This is temporary, said Ted Oakley, founder and managing partner at Oxbow Advisors, and that shares will fall much more.
“For [stocks] To go down another 20 or 30 percent isn’t going to be difficult at all, when you look at what earnings look like in the next two quarters.”
He explained that due to the high cost of capital and the high level of inventory for 38 years, companies can expect weak earnings results in the third and fourth quarters.
Oakley spoke with David Lane, Anchor and Producer at Kitco News.
Stock market soaring?
With stocks rising, Oakley claimed companies would face weak earnings.
“When you look at lower orders, stocks go up, that will affect businesses,” he said. “Look at the big companies that are telling you that business is slowing, they are laying off workers. The big tech companies are really doing that.”
While the “recession is really taking hold,” Oakley believes Wall Street will come to its senses and revise its optimistic outlook on stocks.
“Wall Street likes to keep high profits until it hits the bottom and then collapses,” he explained. “It could be a year from now. The point is that they’re still getting a 10 percent dividend from the S&P this year. And we don’t think there’s any way that could happen from that point on.”
He added that Wall Street “gets paid to sell the good news,” not necessarily an accurate forecast.
However, Oakley wasn’t entirely pessimistic. He noted that the phrase “somewhere in the next six to twelve months” would provide a “fantastic buying opportunity” in stocks, with prices lower.
The yield curve, which measures the difference between long-term and short-term T-bills, is steep. Recently, the spread between 10-year and 2-year Treasuries has turned negative, indicating a recession.
For Oakley, this represents an opportunity in the bond.
“We probably own 5 to 8 percent of long-term Treasury bonds, because we think that with a very steep curve, that long yield is going to go down,” he said.
He said Oxbow is also investing “a lot of money right now” in 6-month to 2-year Treasurys, given that “these returns are really good bargains right now.”
Oakley said Oxbow’s bond allocation is “75 to 80 percent” in short-term bonds. He also refused to invest in corporate bonds, saying that “there are many companies in that group that issued bad debt, and Wall Street allowed them to do so.”
For Oakley’s thoughts on consumer goods and real estate, watch the video above.
Follow David Lin on Twitter: @davidlin_TV (https://twitter.com/davidlin_TV)
Follow Kitco News on Twitter: @KitcoNewsNOW (https://twitter.com/KitcoNewsNOW)
Disclaimer: The opinions expressed in this article are those of the author and may not reflect the views of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; However, Kitco Metals Inc. cannot. Nor does the author guarantee this accuracy. This article is for informational purposes only. It is not a solicitation to conduct any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. does not accept The author of this article will be liable for losses and/or damages arising from the use of this publication.