Guggenheim’s Minerd Says Stocks to Rise Despite Bubble-Like Look

(Bloomberg) -- Scott Minerd, global chief investment officer at Guggenheim Investments, said he’s reluctantly bullish on U.S. stocks in the near term because of “artificial” government support -- even with valuations at late-1990s levels.

“My bet is that monetary policy will remain loose enough to continue to drive risk assets higher,” Minerd said in an interview Wednesday on Bloomberg Television. “For people who are looking to maximize returns, the best thing is probably to remain long at this point.”

The S&P 500 index is trading at about 25 times estimated 2020 earnings, similar to multiples seen before the tech bubble burst in 2000. Minerd said his firm’s analysis shows that share prices for the biggest companies -- including Apple Inc., Microsoft Corp., Amazon.com Inc. and Alphabet Inc. -- are being driven largely by changes in their corporate-bond yields.

While there’s probably more money to be made in the stock market, Minerd said, he sees better risk-adjusted returns in high-yield and investment-grade corporate bonds at the moment.

Minerd also said that big banks are inadequately provisioned, having failed to set aside enough money for bad loans at the end of March, and that the combined $28 billion that JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co. earmarked in the second quarter -- the most since the financial crisis -- is “a stab in the dark.” The banks are “in a game of catch-up,” Minerd said, and he expects to see more provisioning later this year.

Other takeaways from the interview:

• “In every metric we have -- debt to GDP, debt to free cash flow -- corporate America has never been this levered,” Minerd said. “That was true in December, and $1.5 trillion” of bond sales later -- greater than the total for all of last year -- “we’re making companies even more vulnerable by lending them money when they should be trying to pay down their debts.”
• A political backlash against banks for their gains in trading revenue is “a very, very real risk,” he said. “The banks have targets on their back from the financial crisis. They are constantly being identified the winners every time we have a bailout. The reality is there is going to be a backlash for the banks, especially if there’s a Democrat administration that comes to power.”
• The chances of a contested election in November are “high,” Minerd said. “But history shows those experiences tend to be very transitory, so I wouldn’t be necessarily factoring that into my risk assessment for a long-term investor.”

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