Ken Heebner, who manages more than $11 billion through CGM mutual funds, says the worst is behind us — at least in terms of the economy.
Heebner's flagship CGM Focus fund was up 71 percent for the 12 months ending June 30. CGM Mutual gained a little more than 26 percent over the same time frame.
“My view is we've probably seen the weakest period of economic activity,” Heebner recently told the Boston Globe.
“The economy may not be robust in the next year, but it's seen its low point and at some point will move higher.”
He thinks the housing problem is bad, but, “I don't think this is as big a deal as everyone else does.” According to Heebner, a third of homeowners don’t have any mortgage at all, and the vast majority of Americans have at least some equity and hold fixed-rate mortgages.
The bubble and subsequent crash in home prices has also been isolated, in his opinion.
“There's only four states where they walked housing prices to Never-Never-Land, and now it's coming back to a realistic level.”
The U.S. economy “will surprise us on the upside, growing between 2 to 4 percent over the next 12 months.”
However, the story for the global economy will be the developing countries. Heebner points out that “there are 3 billion people in China, Russia, India, Brazil, and other fast-growing nations.”
There is ever increasing demand from these developing economies.
“In a nutshell, these foreign countries place a high priority on growth,” and Heebner sees investment opportunities based on that idea.
“These people don't have the roads, the airports, the infrastructure — and the building of these creates big demand for industrial raw materials and energy in all forms.”
This may fuel inflation, and within three years, he sees inflation in the United States approaching 10 percent. Yet Heebner remains an optimist.
“In the 1970s and 1980s, when inflation was high — we made good money investing in stocks in that period.”
An inflationary environment can be challenging for investors. Heebner is looking for companies with very strong earnings growth, noting that inflation historically causes price-to-earnings ratios to decline.
Heebner is known for a hyperactive trading style. While U.S. Steel was among his biggest winners in the first half of 2008, he won’t confirm that he still owns steel makers.
“The only two stocks I've made references to [owning] in the last few months are Petrobas and Schlumberger,” he said. “I'm changing the portfolios so frequently. “
But he has a contrarian and optimistic view of the U.S. economy.
“Our natural competitive strengths, our innovation and creativity, remain unique skills in the global economy. We're going to start to export cars, we'll start to export steel.”
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