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Fischer On Market Sensibilities

Finally, someone who talks sense about the current turmoil in the markets. The markets should not behave like a petulant child when candies are taken away from them. One, you cannot live on liquidity pumping forever. Two, the withdrawal will only happens when the global economy is recovering sufficiently. So where is the problem?

Billionaire investor Ken Fisher said the U.S. stock market rally that began in 2009 is only in its “middle” stages because most investors still underestimate the strength of the economy.

“We’re right in that transition between skepticism and optimism,” the founder of Fisher Investments, which manages $48 billion, said in an interview at Bloomberg News’s office in Seattle. “The notion that it’s actually the middle of a bull market and there’s a lot ahead -- that’s a really impossible concept for most people to get.”

Stocks tumbled last week, with the Standard & Poor’s 500 Index posting its biggest two-day drop since November 2011, and bonds fell around the world after Federal Reserve Chairman Ben S. Bernanke said the Fed may start reducing asset purchases that have fueled gains in markets. The S&P index has slid 4.9 percent since a record high on May 21.

“I’m always amazed that people don’t marvel at the power of global capitalism and global economies, that they’ve actually done as well as they have,” said Fisher, 62, whose company is based in Woodside, California.

If the Fed reduces the stimulus, known as quantitative easing, the economy will grow faster, he said in the interview hours after Bernanke’s June 19 announcement. That’s because key interest rates will rise, encouraging banks to lend more money to companies for hiring and expansion, the investor said.
“I want QE to end because it’s bullish,” he said.

‘Wildly Optimistic’

Fisher’s predictions proved too bullish six years ago.

“I’m on the wildly optimistic side of things,” he told Bloomberg News at the end of March 2007, as a decline in the U.S. housing market began fueling foreclosures and investment losses that imperiled the financial industry the following year. While the S&P 500 (SPX) went on to rise 10 percent to a then-record high about six months later, it turned and plunged as much as 57 percent through March 2009.

In April 2009, Fisher correctly predicted that the S&P 500 would extend a rally that started in the previous month to between 60 percent and 70 percent by March 2010. In January 2011, he told Bloomberg News he didn’t expect “high equity returns” in 2011. The S&P 500 ended the year virtually unchanged, losing 0.04 point for its smallest annual change since 1947.

Consumer Comfort

Americans’ views on the economy last week were the least pessimistic in five years, the Bloomberg Consumer Comfort Index shows. Its measure of how households view the state of the economy climbed to the highest since January 2008.

Slowing global growth contributed to this week’s stock declines. Manufacturing in China is shrinking at a faster pace this month, according to a survey of purchasing managers released yesterday. Jobless claims in the U.S. surpassed forecasts, climbing by 18,000 to 354,000 in the week ended June 15, according to a Labor Department report last week.

Investors who pushed stocks down this week are overlooking data showing long-term interest rates rising, a positive sign, Fisher said in another interview after U.S. markets closed yesterday.

“It’s Mr. Market doing what it does: It’s trying to see if it can turn you against your better judgment,” he said.

Gold is set for its worst week since April after falling below $1,300 an ounce yesterday to the lowest in more than 2 1/2 years in New York. Bullion has slid 23 percent this year through yesterday as the Fed signaled it will taper the debt-buying that has helped the metal’s bull run.

Inflation Translation

“Most of history it loses money,” Fisher said. “Before the 2011 peak, people were still holding their breath for QE to translate into inflation, which would then push gold up. And when you waited too long and that didn’t happen, it backfired.”

Fisher is best known for writing a column in Forbes magazine for almost 29 years, he also has published 10 books, including “The Little Book of Market Myths: How to Profit by Avoiding the Investing Mistakes Everyone Else Makes” (Wiley, 2013).

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