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Strategist David Nelson to Moneynews: Move Money to Stocks to Avoid ‘Bond Bubble’

By Dan Weil and Kathleen Walter   |   Friday, 01 Feb 2013 08:03 AM

Bonds are in a bubble, while stocks are headed higher, so it’s time to shift to equities from fixed-income, says David Nelson chief strategist for Belpointe Asset Management.

In an exclusive interview with Newsmax TV, he compares the present day to 2000, when the Internet-fueled stock bubble burst. Back then, Treasury yields were high and earnings yields were low. Now it’s the opposite.

“The question comes to mind, which is in a bubble? And I say it’s not stocks that are in a bubble, bonds are in a bubble,” Nelson says. “Investors at this point in time are going to have to start taking some money out of bonds and moving it to stocks.”

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The Standard & Poor’s 500 Index generated a total return of 16 percent last year, and the index has gained 5.7 percent so far this year.

That leaves the market vulnerable to a 3 to 5 percent correction at any time, he notes. “We’re pretty stretched. We came up here pretty fast. But I would have to put my money on stocks this year, and we’ll be higher.”

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

The biggest risk investors face this year is political, Nelson explains. “We’ve become polarized as a nation. There’s no centrists, and it was the center that got things done. The political divide is extremely wide.”

As a Republican, Nelson was extremely upset at Democrats’ handling of the fiscal cliff negotiations. “The president talked a lot about a balanced approach, revenue and spending cuts. Well, we got the revenue, all right, but there’s been no talk of spending cuts.”

Nelson said he is obsessed with the trials and tribulations of Apple just like so many other investors, calling himself an Appleholic. “What investors have to understand about this company is that it’s still a great company, and by any metric it appears cheap,” he says.

“But two things are happening that investors have to deal with. One is the fact that growth is slow, and that’s not surprising. You can’t grow at 50 percent forever, or 40, or 30, or even 20. And when we understand whether that growth is 5, or 10 or maybe 15 percent, the stock will probably bottom out.”

The other issue, which doesn’t receive adequate attention, is the decline of Apple’s lofty profit margins, he adds. “There’s tremendous competition out there from Samsung, Nokia and others, and they operate at a very low margin selling cheap phones. Apple’s going to have to do the same thing.”

Nelson notes that the Federal Reserve is in unchartered territory on its easing program, tying an interest-rate hike to unemployment falling to 6.5 percent, for example. Fed easing alone won’t push it to that level, he says. “Some of these issues are cyclical and some of them are secular.”

Editor's Note: Billionaires Dump Stocks. Prepare for the Unthinkable.

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