Legg Mason is an investment management firm with over $31 billion in assets under management. The manager of its LMM LLC’s Opportunity Trust is Bill Miller one of the top people in the investment universe. Recently, Mr. Miller was on Bloomberg discussing the U.S. stocks, markets and his outlook for U.S. home-building stocks.
Mr. Miller stated that the bull markets are based on three factors: liquidity, growth and valuation. When all of these factors are positive then you can say that you have a bull market. In this way, Mr. Miller said that the liquidity and growth are positive and the earnings growth this year will exceed the last year results.
“Valuation is nowhere near as attractive as it was five years ago when we had 12 times earnings, but at 16 times it is a little rich compared to history. Historically, at 15 times or so, we had an interest rate of 6%, so compared to 2.5%-2.6% 10-year it’s extremely attractive,” Mr. Miller added.
At the same time, Mr. Miller considers that the rally in treasury bonds was a good thing for the markets because it caught them off guard and managed to slow them down, while people have taken that as a sign that the market is struggling to appreciate.
Mr. Miller also provided his insights on housing stocks. He stated that those who bring bearish arguments regarding the housing markets are right, but however, such arguments as the reduction in the housing affordability, mortgage purchase applications are down, and people want to rent rather than to buy, should be viewed as bullish arguments instead. He made a comparison with the 2006 headlines, which stated back then that housing ownership was at record levels, and home sales were at record levels as well.
In addition, homebuilding stocks such as KB Home (NYSE:KBH), are “miles off the highs reached in 2006.” Mr. Miller also pointed out that the median P/E for homebuilding stocks stands at 10.5 times next year earnings. So, the growth rate of earnings for homebuilders would be at 20-25% in the next couple of years, Mr. Miller added.
“That’s a very rapid rise in rates combined with the rise in home prices really cut the knees out from under affordability in the short run. But on a longer-term basis, mortgage rates at 4% are hardly demanding and I think people are getting adjusted to that,” he concluded.
On a sidenote, Mr. Miller was asked about the Bitcoin and whether he is still bullish on it. He said that Bitcoin’s value could be zero, but it represents “a really interesting intellectual and technological experiment.” His average cost on Bitcoin stands at around $500, which significantly below the current price of $650-$660.
Regarding the European Central Bank meeting, where the interest rates will be decided and which is a crucial event, Mr. Miller said that no surprises should be expected, as the ECB, as well as the Fed and the Bank of Japan have been “blindingly transparent” about their monetary policies and trying to bring back the economies. He says that the president of the ECB, Mario Draghi, in the long term wants a stronger growth and a lower Euro.
The fund manager also said that his firm holds some Russian equities, such as Gazprom OAO (MCX:GAZP) and Russian payments company Qiwi PLC (NASDAQ:QIWI), which has returned around 50% in the past month and a half.
Watch the full interview below:
In the 13F portfolio of the fund managed by Bill Miller, the largest holding in terms of value is represented by Apple Inc. (NASDAQ:AAPL), of which it owns 348,900 shares, worth $187.26 million, followed by JPMorgan Chase & Co. (NYSE:JPM) and Microsoft Corporation (NASDAQ:MSFT), in which the fund reported ownership of over 2.9 million and 4.2 million shares respectively, held as of the end of March.