Legendary fund manager Bill Miller can still draw a crowd, even after a couple of disappointing years.The manager of Legg Mason's ( LM) ( LMVTX) Value Trust (LMVTX) fund, who beat the S&P 500 for 15 years in a row until his streak ended in 2006, spoke to the press Tuesday about his concerns that the mortgage crisis could push the U.S. economy into recession and his views that, in the long term, many financial, consumer and homebuilder stocks are still good investments. Value Trust is well off the S&P's performance this year, too. But to underscore how exceptional that 15-year run is, the funds with the longest active streaks beating the S&P 500 are at only
A View of the Credit MarketsThe longer the credit markets stay disrupted, the greater the global risks, Miller observes, and he says that if the Fed and other central banks get really aggressive, they could probably "clear it up really quickly," but they're trying to make sure they don't create inflation problems down the road. "Housing we don't care about" so much, he says, noting that housing is a small part of the overall economy, but "we do care about consumption and credit." For things to return to normal, "you first have to have a market for triple-A-rated mortgage-backed securities," he says. "No one's originating those loans."
Financials Harking BackMiller sees the current economic situation as very similar to that of 1990. He notes that financial stocks are trading below their 1990 value, and that year also saw a bottom in the housing market by some measures. "Things won't come back the same way" they were before the credit-market crisis, he says. He says the ultimate measure for the financial stocks will be "what these guys can earn on a sustainable basis." And in the credit markets, "there's no reason to own Treasuries when U.S. financials have such
How Citigroup Can RegroupCitigroup ( C) "is a hugely valuable asset," Miller says of the banking behemoth that has come under such fire for poor performance lately. As it searches for a new CEO, Miller says he would "want somebody to run Citi the way Mark Hurd ran Hewlett," because he feels Hurd's attitude was to try to simplify his company's too-complex processes. He doesn't necessarily want someone to come in and overhaul Citi, even though it has been hit by criticism about being too sprawling. Citi accounted for 2.5% of Value Trust's holdings as of Sept. 30, according to information on Legg Mason's Web site.
Miller also cites Freddie Mac ( FRE) as a temporary victim of the crisis, noting that the mortgage finance company took huge mark-to-market losses when the credit markets dried up over the summer, forcing it to write down the value of some of its assets. These assets are now valued so cheaply that Miller believes Freddie could get a boost when credit markets return to normal. "In a year or so, Freddie will work all that stuff back again" higher, he says, once buyers return to the market.
trade-off in the market, with the dollar cheaper," he says.