The bulls see the current climate as stimulative and accommodative as low interest rates, big fiscal stimuli and stabilizing data persist. While the bears point out there's still negative growth, enormous deleveraging, ongoing bankruptcies, banks' margins lacking, low consumer spending and no pricing power in terms of wage holding the economy back. But neither of them are right, Philip Manduca, head of investment at ECU Group said Thursday, while acknowledging that fears of a very bad September haunt the market.
We're in for a period of low investment returns where stocks will not be an interesting place to be, Manduca said.
He sees "enormous fear in September" as all analysts, chartists, etc, "are talking about a very bad September ahead of us."
Investors such as hedge funds have reversed their risks in the options markets, as well as shortened their positions as "a number of them are fearful of a very bad September," and that is adding caution to the equation right now, Manduca said.
"If September doesn't come up with all the bad news that the bears are forecasting … there's going to be another rally before the end of that month," he added.
But Manduca countered with: "I do believe that we're fully invested at an institutional level; I do believe that the sentiment levels in equities suggest we're going to get a correction and I have no doubt that we will get some degree of correction early in September. The question will be to what degree."
Manduca acknowledged that he has never seen such a wide divergence between "extreme bears and extreme bulls" before.
"My baseline case is that we're probably pretty much in the middle of nowhere right now and we will be for some time to come," Manduca told CNBC.
He doesn't see huge consumer-driven demand coming through any time soon.
Manduca also sees the public sector "staying in play" for a lot longer than it would like to, adding that the private sector will not "come back in sufficient quantity in 2010 to replace that public sector output."
"As a consequence, you're not going to get huge earnings streams, but you're not going to get collapses either," he predicted.
He suggests investing in gold — as his target is $2,000 by the end of 2010 — as well as well as buying sterling/dollar at $1.60 — Manduca's target is ultimately $1.75 — and sterling/yen at 148 yen, but he sees it heading to 170 yen.