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Schwab: Stocks Absolutely Cheap Now

By    |   Tuesday, 16 Dec 2008 09:11 AM

Investment guru Charles Schwab is saying that the Dow could bounce back, and do so dramatically, during the next quarter — if President-elect Barack Obama follows his economic policy advice.

Schwab, 71, chairman of Charles Schwab & Co., says that the market could increase by 40 percent to 50 percent, pushing the Dow up by 3,000 points, despite the economic difficulties facing the United States.

Now is the time to buy stocks, Schwab told Forbes magazine, because prices are right.

"By any measure they're absolutely cheap," Schwab says.

"After 18 months of decline, the equity markets are really, really cheap for the long-term. You still have to remain well diversified, and you have to think about asset allocation. You've always got to think about having some fixed income in your portfolio as well as equities."

What could push up the stock market, and the underlying U.S. economy, even more, would be if Obama follows up on his campaign promise to reduce taxes for the majority of Americans.

"It will definitely get better after Obama has his team together and is able to submit to the public what he's going to do," said Schwab.

"He said he would reduce taxes for 95 percent of the population. I would have him keep that pledge, but announce for the other 5 percent there will be no change in their tax rate for at least three years. That would probably send the stock market really turning around."

According to Schwab, the market has been plagued by a "tsunami of uncertainty" since the election and investor concerns about the direction of the incoming administration.

"Lots of people are worried about taxes and have been selling. I would then suggest that he (Obama) come out with a strong agenda with respect to infrastructure investments. It will probably cost well above $1 trillion. This is big-time stuff. We've got to make that investment. I think we could handle it," Schwab said.

Schwab is, however, concerned about the proposed government bailout of the auto industry.

He believes that General Motors, Ford, and Chrysler should go through bankruptcy to reorganize.

Other opinion makers agree.

Sen. Jim DeMint (R-S.C.) said he does not want the car companies to fail, and they will not fail if they go into Chapter 11 bankruptcy, which will allow them to reschedule their debt payments and union contracts under the authority of a federal judge who could "help them make the hard decisions that would create a sustainable business."

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Investment guru Charles Schwab is saying that the Dow could bounce back, and do so dramatically, during the next quarter — if President-elect Barack Obama follows his economic policy advice.Schwab, 71, chairman of Charles Schwab & Co., says that the market could increase by...
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2008-11-16
Tuesday, 16 Dec 2008 09:11 AM
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