Bloomberg TV"Final Word" April 3, 2008
In his April 3 appearance on Bloomberg TV's "Final Word" Nick Calamos discussed why he believes the U.S. economy is likely facing a more typical recession and why the equity markets may be poised to rebound. He also discussed emerging opportunities in the financial sector and his team's conviction in technology stocks.
The co-chief investment officer of Calamos Investments explained that the markets have historically acted in advance of the economy. "Remember, when things look the worst, it's typically when the markets turn back up, even though the economics lag," he said. Nick noted the S&P 500 Index has already corrected close to 20 percent, suggesting a recession may be largely priced into the markets already.
As to whether the U.S. economy was facing an unusually severe downturn, Nick said he believed it was more probable that the economy was going to have to weather a more typical recession. Nick drew parallels to conditions in the current economic landscape—such as the mortgage and credit crisis—and conditions during the 1990 recession, when the S&L and junk bond crises and the imploding Japanese economy roiled the markets for a time. Then, the S&P 500 Index corrected approximately 20 percent over a period of roughly four months, but the economy and markets ultimately regained their footing and opened into the bull market of the late 1990s.
Nick said his team was finding buying opportunities. "Valuations look very good, and it's time to put some money to work again." He noted that even though there are "probably additional shoes to drop" in the financials sector, he believed select openings were emerging to invest in large-cap banking companies.
Nick underscored that Calamos Investments is seeking to participate in the potential upside of the financial sector with less downside risk exposure. Rather than purchasing banking stocks, the Calamos Investment team is purchasing convertible preferred stocks issued by banking companies. (Convertible securities are a core area of expertise for Calamos Investments.)
Convertible preferred securities are ahead of equities in a company's capital structure, which means their holders typically have greater protection than common stock holders, should a company go bankrupt. Convertible preferreds also provide coupon income, which may cushion downside volatility. Nick reported that his team has been able to find convertible preferreds in the financial sector with very compelling yields, "in the 7 percent to 7 ½ percent range."
The battered technology sector is another area that holds considerable appeal to the Calamos Investment team "We think [technology stocks] were hit too hard" during the first quarter, Nick said. Many technology companies are at the forefront of innovation, and are seeing great demand for their products—regardless of recessionary pressures.
Nick emphasized that the Calamos Investment process seeks companies that are well positioned to withstand more challenging investment environments. "We always look for companies that are intelligently capitalized" with sound balances sheets and high return on invested capital.
The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Information contained herein is for informational purposes only should not be considered investment advice.