Strategas Research’s Trennert: People Don’t Realize ‘They Can Lose a Lot of Money Very Quickly’

Friday, 15 Mar 2013 01:33 PM

By Glenn J. Kalinoski and David Nelson

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Investors shouldn’t expect stocks to reach record highs indefinitely, said Jason Trennert, founder and chief investment strategist at Strategas Research Partners.

“I’m not sure a lot of individual investors understand the duration risk they’re taking if interest rates ever [go] back up,” Trennert told Newsmax TV in an exclusive interview.

“I don’t think people realize that they can lose a lot of money very quickly. Given the amount of central bank accommodation out there, I’m much more worried about the runaway upside at stock prices than the runaway downside.”

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Editor's Note: A full, unedited version of this interview is available exclusively to Financial Braintrust Alliance subscribers. Visit www.fbtalliance.com for more information and to sign up.

He extended his cautionary tone beyond equities.

“A lot of individual investors seem to be looking at bond mutual funds as a proxy, as a substitute, for cash, and it’s not the same thing,” he said. “It’s easy to think that because it’s a bond. You just get your money back, but if you’re buying a bond fund, there’s yield and principal, and you can have big losses on the principal side.”

With the Dow Jones Industrial Average recently posting a 10-session win streak, Trennert discussed something he called the Bernanke Doctrine. He described it as when being faced with a choice between inflation and deflation, “you always err on the side of perhaps creating too much inflation.” He called deflation “verboten.”

“The biggest problem I see with it is it’s creating a certain moral hazard for fiscal policy makers,” he said. “The president and Congress … don’t understand the risks that they’re taking by racking up the debts that they’re doing. It’s mainly because the Fed is there. So no one sees the risks involved in runaway spending because the Fed is standing there as a captive buyer [of bonds] and keeping interest rates very low.”

Trennert said the current runup in stocks is being driven by the fact that investors simply have no other choice.

Editor’s Note: Put the World’s Top Financial Minds to Work for You

“For a lot of investors, particularly fiduciaries, pensions, public pensions, endowments, there is no alternative other than equities if they have any chance of meeting their actuarial assumptions,” he said. “Retail investors, they’re starting to believe that … but generally speaking they’re the last in.”

He also stated that tax receipts have never been higher, but that the federal government is still running a budget deficit close to $1 trillion.

The only way out of the current situation, according to Trennert: growth.

“The only way to do that is to stimulate private capital formation,” he said. “Redistributing wealth doesn’t work. Eventually, you run out of other people’s money," he said.

He also addressed defense spending. “If we just started with the things that are really in our own national interest … not other things or not the altruistic view of how the U.S. should impose its power around the world, I have a feeling we could save an awful lot of money and still provide for our servicemen and women.”

Trennert had no shortage of items to list when asked what keeps him up at night.

“One of the great risks to the global economy could be Europe, and the euro itself … could be very much at risk because popular sentiment seems to be turning against it,” he said. “I don’t know if popular sentiment has ever been particularly for it. China’s approach to managing its currency is creating other dislocations in the market.”

Editor’s Note: Put the World’s Top Financial Minds to Work for You

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