Wednesday, May 16, 2007

Stock Market Thoughts from Michael Cuggino

Excerpt from last night's conversation with Kudlow & Company friend, Michael Cuggino. He's the president and portfolio manager at the Permanent Portfolio Family of Funds, where he manages the five-star Morningstar-rated Permanent Portfolio Fund (PRPFX).

KUDLOW: You've had this phenomenal run here. You have a great record. What is the best investment strategy? What are you doing now? Because nothing can keep going up in a straight line forever.

MR. CUGGINO: Well, I agree, Larry. As I've said before on your program, I think the economy's a lot stronger than people have given it credit for. We may be in a slowing phase, but I still think all in all, the positives way outweigh the negatives. And we're going to continue to see stock prices trend higher through the rest of the year.

Having said that, we've had a great run the last two months. The major indexes are all up between 5 and 10 percent. Probably closer to 10 percent. The Nasdaq, the S&P 500, the Dow, nothing grows to the sky, and so we're going to have some consolidation, some profit taking, no question. And investors need to keep that in mind in their long term investing profiles.

Investors should be diversified among a lot of different industry groups and stocks. They should also hedge some of their bets in some other areas. Bonds, non-US stocks and bonds, and also some commodities and precious metals because those markets have done very well, too. And investors need exposure to that when you have the inevitable downturn in stocks.

KUDLOW: So, all right. So you want people to go out and buy some bonds, you want them to buy some commodities. Commodities have been a very, very hot performing sector. Do you want them to take any chips off the table? There's no law against taking profits.

MR. CUGGINO: Definitely not. And for people that want to do that, I think the bond market's not rewarding investors for going out too long on the yield curve, you know, five, 10 years or whatever. The real yield is in the short term paper. So the ultimate safety play is to put it in cash, put it in short term Treasuries for a while, wait out things till maybe there's a better buying opportunity and then get maybe back into stocks. So that's certainly one area to take a look at.