Good Reasons to Be Cautious

11/25/2011 11:30 am EST


Danielle Park

President and Portfolio Manager, Venable Park Investment Counsel, Inc.

Danielle Park believes we're in a long-term bear market that has not ended, so she advises holding back and devising a buy list for when the opportunities become strong again, as she explains in this exclusive interview with

Danielle, tell us a little bit about your global perspective. What are some regions that investors should be looking at these days?

I'd like to say there is decoupling, where certain regions are escaping the overarching themes going on in the world today, but in fact, I find that everything is highly coupled. So although there are higher growth areas in the world-like Asia, for example, is certainly growing at a faster clip than North America and other Western economies-the trick of it is that the stock markets are highly correlated.

So when people talk about those global themes, they usually have some element of hope that certain parts will decouple from others. What we're in the midst of today is a cyclical bear market in global stocks around the world. Things really go to a very high level of correlation. So what you need to do is understand that first of all.

I've used the term jelly beans before. They're all different colors, but when jelly beans go down, they all go together kind of thing. So you have to be careful about when you have jelly beans.

But when you get the next buying opportunity, now is the time to raise some cash, have your lists available of what regions you think will be the ones to recover coming out of this downturn the quickest, and look for ETFs or sectors that you can invest in now and wait for the price to basically come to you.

That's the best strategy that I think you can have, is have the liquidity built up now before a lot of trauma. Although, a few months would have been better because the trauma has already started in the world downturn.

But after this period, we will get another significant buying opportunity, probably like we got in March 2009. At that point, stocks and commodities, I think, will be things that you can pick up again at reasonable prices.

Well, let's turn to the commodities market, then. What is your research showing that investors might want to take a look at?

Well, the first thing is, I'm a deflationist in the short to medium term. In other words, I believe that commodities today are very overvalued because of government intervention and stimulus money that has come into them in the last couple of years.

I felt this way about them in 2007, and ultimately that proved to be justified. The measurements that we took back then that said stocks and commodities were extremely overvalued apply today as well.

So I think that as the recession theme plays out around the globe over the next perhaps 12 months, you're going to see commodities sell off with the realization that we have too much excess supply already.

We've built too many houses, cars, factories. Every consumer good imaginable is up to the roof in warehouses everywhere. There is too much stuff already built. I think that's going to be a drag on demand for commodities, as I say, over the next several months.

Now, if we get the sell-off like we saw it, for example, in 2008, that was another cyclical buying point. So you know, the secular bull in commodities that has been going on now for the last ten years is very exciting for people, but again, they tend to fall in love and they tend to forget that the cyclical pullbacks in those secular runs are vicious-like 50% to 70% pullbacks.

The idea that China can save the world were debunked in the last downturn. I think they'll be debunked again this time. The global demand cycle has to work out the over-inventory that we presently have, and then you'll get another buying opportunity for a lot of these fundamental base materials that the world uses to build things.

It sounds like you're advising a measure of caution these days, however.

That would be fair to say, caution, but I have been basically since the start of 2011. I have been very concerned and that's proving to be correct.

Now we're negative year to date, and I think we're probably halfway through what we could see here in terms of price declines for a lot of major asset classes in the world.

So that's why I say you want to have liquidity; you want to make your buy list now; you want to have an idea of where the value will come. But at the same time, you have to be careful not to participate in the drops that happen between now and then. 

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