"Market Monitor"-Michael O'Higgins, President of O'Higgins Asset Management
Friday, October 17, 2008PAUL KANGAS: My guest "Market Monitor" this week is Michael O'Higgins, president of O'Higgins Asset Management based in Miami Beach, Florida. Mike, welcome back to NIGHTLY BUSINESS REPORT.
MICHAEL O'HIGGINS, PRES., O'HIGGINS ASSET MANAGEMENT: Nice to be here.
KANGAS: It's been one of the nastiest and most volatile bear markets in recent memory. Do you see any signs that we've reached a bottom or are near one?
O'HIGGINS: I think we've already hit the bottom. I think the bottom was last Friday. But at the very least we're very close if that wasn't it.
KANGAS: What convinced you?
O'HIGGINS: Just the level of panic that's been reached. I don't know if you are familiar with the volatility index, the VIX. But it hit the highest level since the '87 crash.
KANGAS: Are we going to have to live with this forever, this kind of volatility?
O'HIGGINS: I doubt it. At some point things will settle down and we'll start going back up again. But there is still -- it's going to take time for these measures that have been taken to take effect.
KANGAS: Well, today was unusually volatile because of the expiring options and futures, correct.
O'HIGGINS: Right.
KANGAS: We're not going to see that every day.
O'HIGGINS: No, you have them periodically where you have these options expirations. But its --
KANGAS: So if we have seen a bottom, one thing that I was wondering, you have long favored gold and gold stocks. But they don't seem to be participating at this time when fear was at its maximum. What's going on there?
O'HIGGINS: Well, gold has really -- well, because it a deflationary environment right now. And the fear is not of inflation now, it's of deflation. Gold has actually held up OK. Unfortunately the stocks have gone down while gold has gone kind of sideways. The stocks are down 50 percent.
KANGAS: And are they bottoming out with the market, do you think?
O'HIGGINS: Well, I would hope. Certainly usually when gold goes up, the stocks go up quite a bit faster, three to five times faster. And they also go down faster when gold goes down.
KANGAS: When you were last with us in March you recommended six securities to buy. Let's see how they have done since then. I think they were victimized by the fair market.
O'HIGGINS: Do we have to?
KANGAS: I'm afraid so. Let's have a look. Citigroup (C) was one of your favorites and who would have believed it would be down 25 percent from there. And Pfizer (PFE) down 18 percent, you still like Pfizer?
O'HIGGINS: No, it's -- I like it but it's not one of the ones I'm going to recommend tonight.
KANGAS: OK, let's have the next board of previous recommendations. The Belgium I shares down a massive 57 percent. This a global sell-off, obviously.
O'HIGGINS: It was the cheapest at the time. It was the cheapest stock in Europe. Now it is the second cheapest.
KANGAS: OK. And the Thai fund (TTF) down 48 percent or nearly so.
O'HIGGINS: It was the cheapest market in Asia. It still is the cheapest market in Asia.
KANGAS: All right and you had two other recommendations, XTO Energy (XTO) which is strangely enough, well, of course oil is down now.
O'HIGGINS: Yeah, oil is down. And gas is down more than oil. Even though oil was cheap to gas, it's even cheaper now than it was.
KANGAS: And then the precious metal Profunds (PMPIX) down 74 percent, gold hasn't kept up.
O'HIGGINS: As I mentioned, the gold stocks are down 50 percent. This moves one and a half times the price of gold. So or the price of the gold stocks, so it's down 75.
KANGAS: How about some new recommendations, if this is the time to buy, what are we buying?
O'HIGGINS: Right now, I would -- I'm concentrating, I would recommend that people concentrate, keep it simple, four stocks. Citigroup which I think is the poster child for the banking problem.
KANGAS: Is this one of the dogs of the Dow? You are famous for that, you know.
O'HIGGINS: Yes, I wrote the book, literally. It is extremely cheap. They have a global franchise. They're too big to fail. The government has already come out and said they're going to bail out everybody.
KANGAS: We just have a minute left. How about another choice.
O'HIGGINS: Well, we have the cheapest market in Europe is Italy. It's dirt cheap. It's way down also.
KANGAS: The I shares (EWI).
O'HIGGINS: We have -- then we have the energy service group (XES) is extremely cheap. This is the ETF has 20 some odd different -- the average energy service stock is about five times earnings and then we have, I'm staying with the precious metals fund (PMPIX) because I still think gold is going higher and these stocks should go up a lot faster. This a mutual fund that moves one and a half times the Dow Jones precious metal index.
KANGAS: Mike, do you personally own any of these securities mentioned or have other disclosures to make?
O'HIGGINS: I own them all.
KANGAS: You believe in your own cooking in other words.
O'HIGGINS: I like to eat my own cooking. Yes.
KANGAS: We got 15 seconds for any last minute thoughts.
O'HIGGINS: I will also throw in an emerging markets fund, the EEM. Emerging markets have gotten absolutely crucified. And I think, that is where the fastest growth in the emerging markets.
KANGAS: Very good, Mike, thanks once again for being with us.
O'HIGGINS: My pleasure.
KANGAS: My guest, Michael O'Higgins of O'Higgins Asset Management.
