Bloomberg TV "Final Word" February 26, 2008
Nick Calamos shared an optimistic long-term perspective on global growth companies and the secular trends driving global economic expansion.
Even as recessionary concerns mount, Calamos Investments believes the markets continue to offer opportunities for long-term investors and the overall economy remains ''pretty darn strong,'' said Nick P. Calamos on Bloomberg TV's ''Final Word.'' Nick is senior executive vice president and co-chief investment officer of Calamos Investments.
In the February 26 broadcast, Nick explained why he believes the equity markets may already be discounting a recession to a ''large extent.'' ''Post World War II recessions have generally been accompanied by a 20% correction in equity markets, so a lot of the [current recession concern] is embedded in stock prices.''
Much of the storm may already be past for the equity markets, in his view. ''Historically, if you had a correction during a recession, the depth of the correction was the result of a couple factors. For one, how much corporate earnings declined. And secondly, how overpriced equities were going into the recession. On these two fronts, the equity markets look pretty reasonably valued.'' While the Calamos Investments' team expects the pace of corporate earnings to slow compared with recent years, they are not expecting a steep decline.
Nick also underscored that although the U.S. economy contains pockets of weakness, it remains fundamentally sound, further supporting his long-term bullish outlook. ''Clearly, the financial industry is in a recession. The home-building industry is probably in a depression and the auto industry is a recession. But otherwise, the economy looks pretty darn strong. Given that financials [still account for] a large portion of the S&P 500's earnings, it's very possible we've seen the extent of the correction here.''
He emphasized the importance of viewing the current credit crisis and recessionary prospects within a longer-term perspective. ''We are in the midst of the greatest global expansion in the history of the world and this is a hiccup. We've gone through financial situations before, whether it was the Latin American debt crisis [or] the commercial real estate crisis. It's just a part of the cycle. We think it would be foolish not to stay invested here. You're not going to time these things,'' he said. ''Do a good asset allocation with your financial planner and then stay in the markets—don't try to time them.''
In fact, this economic backdrop may signal a buying opportunity. He said he believes now may be ''a good entry point for great global businesses with strong balance sheets and revenue streams that … offer good growth potential'' from global sources.
Nick noted that his team is still underweighting financials—''we're not extremely excited"—but anticipates that the beaten-down financial sector could soon offer more buying opportunities for investors with long-term time horizons. "You definitely have to have your foot in the door … I would not go overweight yet.''
Within the financials sector, the Calamos team is bullish on asset managers—specifically, mutual fund companies. In addition to not having the same heavy and direct exposure to the troubled derivatives market as do many investment banks, mutual fund companies may be positioned to benefit as investors seek to increase their savings. ''You'll probably see a ramp-up in savings, as net worth has declined across the country because of the housing slowdown. People tend to save more when their net worth is at risk.''
Companies participating in the global infrastructure build-out also present compelling opportunity for the Calamos investment team. ''Globally, there's a tremendous need for infrastructure … [for example, in] Asia and India and even Russia. Infrastructure plays make a lot of sense.'' Moreover, in the near-term, a weak dollar may be the "gravy on top" of the long-term secular opportunities of global growth and global trade. Emphasizing that he's not an advocate of a weak dollar policy, Nick did note a belief in a near-term silver lining, in that the weak dollar is "going to give us a chance to increase our export growth.''
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 should not be considered investment advice.