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During the past 20 years, the author has watch China move from being a developing country into an industrial superpower
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The Italian automaker and others are adding hybrid technology to elite cars
The storied bridge that links San Francisco and Marin County changed the face of California
Schools cultivate ties with startups before they're big successes
Dave McClure's traveling venture capital show scours the world for promising startups
Get Four
|  | FEBRUARY 8, 2005
High on Energy, Wary of Inflation [Page 2 of 2] Q: I bought Apex Silver Mines (SIL ) on your advice. Still bullish? A: Yes, I'm extremely bullish on Apex. Silver stocks have had a rough run of late. But over the long haul, Apex with 500 million ounces of silver and comparable amounts of zinc is likely to multiply many times from current levels. This is a stock I would simply put away and ignore daily and even monthly fluctuations, while holding out for the long haul. Q: Back in the energy patch -- Kinder Morgan (KMI ) has a 6.3% yield. That seems high for now -- is it a good buy? A: I think Kinder Morgan and other pipeline companies are very good buys. As I was saying about income stocks before, these are companies with not only decent yields but also the potential for dividend growth. Just a caveat about Kinder, though: Its financials are pretty complicated and, to be honest, I'm not sure I entirely understand them. For that reason we've been recommending TEPPCO Partners (TPP ) in the same area. Its yield is comparable to Kinder's, and its financials are more transparent. Q: What do you think of ETFs (exchange-traded funds)? Do you use them? A: I think they can be very useful. As a money manager, however, I feel it is our responsibility to find the best stocks underlying the ETFs, so we use them very little for our clients. Still, for the individual investor who has a very positive feeling on energy or real estate or even wants to short real estate, ETFs can be very useful. Even for me, one ETF I would buy would be the one for gold (GLD ). GLD offers individual investors the ability to buy the underlying metal directly. Q: Procter & Gamble (PG ) has been holding, but what does the recent drop mean? Merger proposed here, too, of course, with Gillette (G ). A: I think the merger between PG and Gillette is an exceptionally good one, and is likely to increase Procter & Gamble's growth to nearly 12% or 13%. Don't just take it from me -- also take it from Warren Buffett, who is Gillette's largest shareholder and has said publicly that he plans to add to his PG shares when they're exchanged for his Gillette shares. At the end of the day, he's likely to have a position in PG well north of $5 billion. Even for him, that's a big position. Q: Do you like any tech stocks, such as Intel (INTC ) and Texas Instruments (TXN )? Are most overvalued? A: I think if you were to ask 10 Wall Street strategists what they thought about tech, nine would say "overvalued." I don't agree. I think China and India offer tremendous markets for tech companies, and some of these large companies like INTC and TXN are far less cyclical than in the past. Just a historical note: Tech stocks suffered through an approximately 80% bear market between 2000 and 2002. The only comparable bear markets in U.S. stock market history was the Dow at the end of the Depression and small-cap stocks during the 1968-1974 period. In the wake of both bear markets, the Dow and small-cap stocks entered multiyear uptrends. I expect -- and I know this is a very contrarian view -- that tech stocks are going to surprise virtually everyone by remaining in a long-term uptrend. One final point is that these are very volatile stocks and there will be some very scary moments. But I'd be a buyer during periods of weakness, especially in the high-quality tech arena. Q: What about interest rates and inflation? How do you see those factors affecting the market? A: I see interest rates and inflation putting caps on stocks -- not necessarily leading to a bear market but certainly capping the averages. A brief word on inflation: I believe it could go much higher than people think. Over the last 90 years, we've had three bouts of double-digit inflation in the U.S., each spaced by 30 years. Given our high level of government spending, the tremendous amount of leverage in the economy, and what I think will be a very strong uptrend in energy prices, I don't think there's any room to be complacent about inflation. It could again go much higher than virtually anyone thinks. Again, this is over the next several years, not the next few months. Q: So can you give us a forecast of where you see the market at the end of 2005? A: I don't think the Dow is going to be much above or below 10,000. Much like the Dow spent more than 15 years around 1,000 (between the mid-1960s and early 1980s), I think 10,000 will be a very long middle point. The message for investors is pick your stocks with care.
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