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Our philosophy on market timing is simple: It doesn't work.
Trying to predict the outcome of innumerous economic variables is almost always futile – even for Wall Street's most seasoned money managers.
But there's one particular fund manager we're happy to take notes from.
A week ago, in his first-quarter letter to fund shareholders, Miller delivered some heartening words to stock market investors. In short: Miller clearly believes the worst is over.
"The collapse and rescue of Bear Stearns (BSC), [is] an event that I believe (though no one knows) ended the panic phase of the credit cycle. The economic consequences of curtailed credit, increased risk aversion, de-leveraging, lost jobs, falling house prices, and negative equity returns remain, and are likely to take some time to play out. All of those issues have been front-page news for some time, and I believe they are well discounted by the market, which is why stocks have risen since Bear's collapse," he wrote.
Miller's advice is simple: "For planning purposes, here is my forecast: I think we will do better from here on, and that by far the worst is behind us."
But there is a "wild card," Miller believes – commodities.
"If commodities break, or even just stop their relentless rise, equity markets should do well. If they continue to move steadily higher, they have the potential to destabilize the global economy.
"Despite moving higher over the past month, the U.S. market and most others around the world are down for the year, and fear and risk aversion still predominate. Yet valuations in general are not demanding, interest rates are low, and corporate balance sheets, especially in the U.S., are in excellent shape. That sets the stage for what should be an improving environment for investors in stocks and in spread credit products, if not in government bonds where risks are high and opportunities low, in my opinion. With most investors being fearful, I think it makes sense to allocate some capital to the greedy side of that pendulum, and that means putting cash to work in equities."
To read Miller's entire letter to shareholders, please.
[Editor's Note: Alexander Wissel, a financial editor with Investment U, was previously a licensed financial advisor and independent insurance agent, and specialized in research and investor education. To find out more about Investment U, go to www.investmentu.com; to sign up, please click here.]
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