Profits have reached a record 11 percent of gross domestic product, which would normally make you bullish about stocks.
But not this time around, according to Jeremy Grantham, chief investment strategist of money manager GMO, The New York Times reports.
Much of the problem stems from the fact that companies are boosting their profits through borrowing money, he says. Corporations issued a record of more than $1 trillion of debt last year.
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
Thus profits are “weirdly high, unless we’re in one of those wonderful secular shifts that people talk about but almost never see,” Grantham says. And he certainly doesn’t see it now. So strong profit margins represent a red flag for the stock market in his mind.
What markets does he like? Emerging stock markets, Japan and “cheap European value stocks.” For the long term, Grantham recommends commodity and energy stocks.
And in the overvalued United States, buy only top companies, he says.
Zina Spezakis, a partner at MA Capital Management, advises going beyond emerging markets to frontier markets.
Consider “markets such as some in Africa that have increasingly good fundamentals, good risk-return measures and are benefiting from the fact that China is a huge exporter of commodities,” she tells Newsmax TV in an exclusive interview.
Spezakis also favors Thailand and the Philippines. “This is where we think the opportunities are to really add alpha [return] to the portfolio”
Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown
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