Bill Miller at Legg Mason just sent a letter to his investors. He correctly identifies the key issue: "The issue for the stock market and for the global economy is the extent to which the slowdown in U.S. consumption will spill over into a decline in global production next year. "
After reviewing the year, he concludes, "If credit is becoming harder to come by, if spreads are widening, if growth is slowing, then it seems to me the leadership is about to change" and "there is trouble ahead for those crowded into all the popular favorites" (he's referring to tech and materials.)
He will be more in big cap, reduce his midcap holdings, and noted that "I think the greatest gains over the next 5 years will be made in those securities people are panicked about today" (i.e. financials and home builders).
What about the global growth story? He acknowledges its power, but says, "The same strategies that led when the global economy was emerging from fears of deflation and entering a period of accelerating growth and synchronized recovery are very low probability bets to lead if the global economy is peaking, the U.S. is slowing appreciably, and credit spreads are widening, not narrowing."
Note: Miller, a legendary investor, has UNDERPERFORMED the S&P 500 the last two years.
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