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Forbes Financial Round Table: Vahan Janjigian VAHAN JANJIGIAN, PH.D, CFA
Vice President and Executive Director, Forbes Investors Advisory Institute
I guess the advantage of going last is that everybody has already said everything I was going to say. But there are a few things that I'd like to mention. Mike has taken part in these Round Tables for a while so he knows that I've actually been bearish on the market for quite a while. I probably turned bearish too soon.
MIKE HOLLAND: Excuse me; I think kudos is due for your recommended list for the last year. Isn’t that true?
VAHAN JANJIGIAN: Well, I was bearish on the market, but the stocks that I've recommended have done well. We were up about 10 percent in both the Forbes Growth Investor and the Forbes Special Situation Survey portfolios.
Some of my major concerns were already mentioned. The housing market obviously is a major problem. Year-over-year sales are plummeting. What's worse is that prices are now plummeting and the drop in prices is actually accelerating. That is a major problem.
Everybody is familiar with these housing problems, but few realize that what's happening in housing is now spreading into the credit card areas. We're starting to see problems there. I saw a study recently that said the value of credit card loans that are over 90 days overdue have gone up 50 percent over the past year. That's a major problem to worry about.
We talked about oil prices. I would actually have to disagree with Byron on this one because I think oil prices are very likely to fall this year -- perhaps to about $70 a barrel, because of the recession. And I think we're in a recession already. The United States consumes about 25 percent of the oil in the world even though it's true that the big growth is coming from elsewhere. I think there's a good chance that the recession is going to curtail demand in the United States. We're already seeing a bit of that in gasoline. Prices may be quite volatile in the near term. But unless there is a major problem such as some kind of violence in the Strait of Hormuz or a revolution in a major oil producing country, I think we can see oil prices fall by the end of this year. In the long term however, I would certainly have to agree with Byron that the trend is up and it will probably continue to go up.
Gold is already getting close to $1,000 an ounce. I recently had a meeting with a very smart guy -- the CEO of a biotechnology company. He told me he is so worried about the global economy, he's actually buying millions of dollars worth of gold coins and keeping them in a safe. He doesn't even trust gold mining stocks or other kinds of gold investments. He wants the actual coins. I asked him if he though it really made sense to buy so much gold at $800 an ounce? He said it makes a lot sense if you think gold is going to $2,000 an ounce. That’s even more bullish than Byron's forecast.
Inflation, of course, is starting to become a problem. We're starting to see an uptick in inflation, which as mentioned earlier, gives the Fed a big problem. The slowing economy is telling the Fed that it needs to cut interest rates. But inflation indicators are saying maybe not. So the Fed is between a rock and a hard place.
The one bright spot in the economy all along had been employment. In fact, just about a month and a half ago I was on the 12th Forbes Cruise for Investors. I was giving my standard bearish forecast about the economy, but I said I was encouraged by the employment figures. That was the one thing about the economy I really liked. However, I warned that if that falls apart, then a recession would be inevitable. And we just saw that employment is now weakening. Of course, we can't make a lot of conclusions based on one month’s reading, but it sure looks like the economy is no longer producing jobs at the same rate it recently was. The unemployment rate has also jumped up. I believe this indicates we are already in a recession, but don’t know it yet.
Having said that now, right now I would favor the larger-cap stocks. I would also favor the non-cyclical stocks. And I would favor stocks that pay dividends. One of my favorites right now is Johnson & Johnson (NYSE:JNJ). This stock is on both my recommendation lists -- the Growth Investor and the Special Situation Survey.
I'm also starting to get very interested in the financials. We have American International Group AIG (NYSE:AIG) on our recommended list. Citigroup (NYSE:C) is a stock that I'm getting very interested in. We haven't added it to our recommended list yet, but we are getting very tempted. My view is that an investment in Citigroup now will probably be dead money for a while, but over the next three to five years you'll probably be very pleased.
Another stock that we recently recommended, obviously a week too soon, was Supervalu (NYSE:SVU). The stock just plummeted today when they reported better-than-expected earnings, but warned about future results. Now it's selling for about nine or 10 times lowered expectations. That is very attractive.
Next: Forbes Financial Round Table: Mortgage Market Relief?
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