'Cheap' Stocks Signal Bull Market To Some Big Money Managers (Tsang, Hauck & Baker)

Created by : Francis Goodwin View profile

``The economy is stronger than people think it is.''

By Michael Tsang, Daniel Hauck and Nick Baker

April 2 (Bloomberg) -- The U.S. economy is slowing. Mortgage defaults are rising. And stocks are the cheapest in 20 years, a ``buy'' signal for some of the world's biggest money managers.

BlackRock Inc., Fisher Investments Inc. and Schroders Plc, which manage about $1.4 trillion, say stocks are inexpensive relative to bonds. Profit of companies in the Standard & Poor's 500 Index, the benchmark for American equity, is growing faster than shares, and represents a yield of 6.53 percent compared with 4.65 percent for 10-year U.S. Treasury notes.

The gap -- the widest since 1986, according to data compiled by Bloomberg -- is encouraging investors because earnings forecasts indicate the U.S. will keep growing, while bond yields show confidence that inflation will stay in check.

``I'm on the wildly optimistic side of things,'' said Kenneth Fisher, who oversees about $38 billion as chairman of Fisher Investments in Woodside, California. ``The economy is stronger than people think it is.''