A Defiant Bull

02/08/2008 12:00 am EST


Ned Riley

Founder and CEO, Riley Asset Management

Ned Riley, founder and CEO of Riley Asset Management, sees many positives in the current market, but thinks it may take a while for the bull to start running again.

Riley told his audience that the time has passed for arguing whether or not we are in a recession in the US. He said, “just accept that we are” and realize it is a natural part of the market cycle. Then, you can begin planning to profit from the bull market that will return after the down cycle.

He noted that when the media finally begins to catch on that there is a recession, it’s almost time for the market to turn and for investors to begin buying again. Riley cited examples demonstrating that most bull markets begin during periods when everything just seems horrible.

He calls our current market a “defiant bull” —one that will continue, eventually, to fight off the negative news, but he also doesn’t see a quick return to a raging bull market.

However, Riley noted that many positive signs exist, including the coming tax package that will expand the upper limits on conventional mortgages; the Federal Reserve’s continued rate cuts; and softening oil prices.

In addition, US corporate earnings have grown 140% since the turn of the decade, and price/earnings multiples are low. Furthermore, short sellers have built up incredible volume—all shares that will have to be repurchased at some point, which will bring buying pressure into the market.

These factors, coupled with the huge amounts of available cash—domestically, as well as from international sources such as sovereign funds—bode well for long-term investors.

With that in mind, he closed his presentation by sharing several exchange-traded fund recommendations with attendees:

For the broad markets, Riley likes the S&P 500 SPDR (Amex: SPY) and PowerShares QQQ (Nasdaq: QQQQ). He also is positive on financials, because of their high yields, and he is recommending Financial Select SPDR (Amex: XLF); Technology Select SPDR (Amex: XLK) for a good combination of technology and biotechnology, and the Consumer Staple SPDR (Amex: XLP) for healthcare, which should get a boost from the growing pipeline of new drugs, the possibility of a national healthcare program, and continued strong spending on research and development.

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