It is clear that we are still paying the price for the extraordinary run up in not only share prices, but corporate investment and information technology spending. There are still some past excesses that need to work their way through the system. There are also significant bargains to be had. There are many stocks that have been hammered despite having strong underlying fundamentals. We think this environment will favor the stock picker.
Bargains await the informed investor in several asset classes.
Corporate bonds, in general, and high yield bonds, in particular, appear quite cheap. Every time in the past they ve been this inexpensive, a significant recovery has ensued. International bonds remain very cheap, at least from a U.S. point of view. This is due almost entirely to the dollar, which would benefit international equities as well if it were to return to historical levels. Despite the carnage of the last year or so, it s critical for investors to consider the recent returns in the context of longer-term results.