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What's the Investing Secret That Liz Ann Sonders is Hiding?

Liz Ann Sonders thinks she’s found a secret in the market, an investing idea that few others have noticed and is thus ripe for the pickings.

Source: aboutschwab.com

No, it’s not emerging markets. No, it’s not tech (though she does like the sector). And no, it’s not even bonds.

What Sonders thinks she has discovered that is ready to propel the markets higher is something far more elusive and arcane: Optimism.

The chief market strategist at Charles Schwab believes that the one factor most restricting gains is the refusal of investors to simply turn positive and embrace the notion that the worst has passed for the stock market.

One wonders whether Sonders’ cat will get out of the bag.

“I’m always most intrigued by the story that the least amount of people are telling, and the story people aren’t telling is really the optimistic story,” Sonders says amid a hectic morning at the Impact 2010 investor conference that Schwab is sponsoring this week.

While Sonders may not be as recognizable a name in investing as, say, Warren Buffett or Bill Gross, she’s a bit of a rock star this week, commanding big crowds and a horde of press followers at an event that has attracted more than 3,600 market pros.

On Tuesday night she spoke at a packed-house discussion moderated by CNBC’s Maria Bartiromo, during which Sonders surprised some in the crowd with her bullish long-term stance on the market.

“There’s more appearance of the view that we’re in some sort of triage and some form of recovery, albeit a fairly anemic form,” she says. “The economy is always like a combustion engine. You get to that point where it starts to feed on itself.”

Three years ago Impact attendees heard a completely different tone as Sonders warned about the state of the markets and the difficult times ahead.

But now she’s seeing clearer skies.

She’s no Polyanna, though she is the first market authority I’ve heard use the term “Goldilocks” since the early days of the financial crisis when everyone was trying to tell the public that the market would weather the subprime mortgage collapse.

When she brought the term up during the Tuesday evening discussion, there was an audible sigh or groan or gasp or something in the army of advisors and other money people in the audience. A “Goldilocks” economy, of course, is one that’s not too hot and not too cold but moving along at just the right pace, a direction to which Sonders believes the US is gravitating.

“I frankly am happy that that we have a slow pace of growth right now, because it’s driven less by a profligate consumer,” she says. “What we want right now in my view is low single-digit growth with more of a business spending driver than a consumer driver.”

As for potential storm clouds, the threat of continued high unemployment, a seemingly inevitable double-dip in housing and the continuing foreclosure fraud case bother her less than something unknown hitting the economy: “Geopolitical, military, it could be nuclear – it could be any of those obvious things that we can’t help but worry about in the modern era.”

“I don’t think this foreclosure issue is going to turn into 2008 all over again,” she adds. “There’s certainly troubling aspects to that.”

She also seems untroubled about the coming midterm elections and the expectations of the Fed to launch the second round of quantitative easing — call them the Big Two — and their ability to move markets much.

Sonders, after all, had just come from a riveting morning Q&A she led with former Treasury Secretary Henry Paulson before our interview, marking the Big Two seem small.

After hearing Paulson’s war stories and the ability of the economy to overcome that level of turmoil, it’s easy to be, well, optimistic.

“That’s the thing that keeps us that optimistic, that we’re going to innovate and create our way out of this,” she says. “It causes that little voice in your head to say, ‘What are the chances that we look back five years from now, 10 years from now, and say, what do you know, we did it again?’”

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Companies mentioned in this post

Charles Schwab

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