WHEN: TODAY, TUESDAY, JANUARY 12TH AT 8:30AM ET
WHERE: CNBC'S"SQUAWK BOX"
Following is the unofficial transcript of a CNBC EXCLUSIVE interview will Bill Miller, Legg Mason Chairman, CIO & Portfolio Manager, today on CNBC's "Squawk Box"
All references must be sourced to CNBC.
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QUICK: HE IS THE PORTFOLIO MANAGER HOLDING THE RECORD FOR BEATING THE S&P 500 AND DOING IT FOR 15 YEARS IN A ROW. JOINING US RIGHT NOW IN A CNBC EXCLUSIVE, LEDGEARY INVESTOR BILL MILLER, CHAIRMAN, CHIEF INVESTMENT OFFICER AND PORTFOLIO OFFICER AT LEGG MASON. ALSO,ON OUR GUEST HOST JOHN ROGERS OF ARIEL INVESTMENTS. BILL, WELCOME TO THE PARTY THIS MORNING.
MILLER: THANK YOU GREAT TO BE HERE.
QUICK: GREAT TO HAVE YOU HERE. YOU KNOW, WE LOOK BACK AT SOMEBODY WHO'S HAD A RECORD LIKEYOURS, 15 YEARS IN A ROW BEATING THE S&P 500 IS JUST SOMETHING THAT'S UNBELIEVABLE.I KNOW THERE WERE A COUPLE OF ROUGH YEARS AND THEN LAST YEAR YOUR FUNDS WERE UP -- I GUESS THE OPPORTUNITY FUND WAS UP BY BETTER THAN 80%, VALUE TRUST WAS UP BY BETTER THAN 40%.THOSE ARE INCREDIBLE RETURNS AND YET YOU SAY YOU STILL SEE VALUE OUT THERE WHEN YOU LOOK AROUND AT THE MARKET.
MILLER: BECKY I THINK THERE'S A LOT OF VALUE IN THE OVERALL MARKET RIGHT NOW.YOU KNOW, WHAT WE HAVE IS A RECOVERY WHICH IS JUST BEGINNING. THE FINANCIAL CRISIS IS MOSTLY OVER BUT THE RECOVERY IS JUST UNDER WAY. WE HAD A THIRD QUARTER GDP NUMBER PLUS 2%, THE FOURTH QUARTER WILL BE PROBABLY PLUS 4%. THE CONSENSUS FOR 2010 IS .2.7% ON THE FED'S FORECASTS.ALL THE ECONOMIC DATA WE SEE INDICATES THAT'S GOING TO BE HIGHER IN 2010 THAN 2.7 PROBABLY IN THE 3.5 TO 4.5% RANGE. CORPORATE PROFITS ARE GOING TO BE 25% IN 2010 YET YOU CAN FIND COMPANIES IN THE OVERALL MARKET -- I MEAN, IBM IS A CLASSIC EXAMPLE. YOU CAN BUY IBM AT UNDER 12 TIMES THIS YEAR'S EARNINGS WITH RECORD EARNINGS, RECORD MARGINS. REMARKABLE VALUES IN THE OVERALL MARKET.YOU CAN BUY REGIONAL BANKS AT DISCOUNTS TO TANGIBLE BOOK VALUE. THERE'S A LOT LEFT IN THE MARKET IN MY OPINION.
QUICK: SO WE HAVE A LOT OF PEOPLE WHO COME ON THIS SHOW, SOME OF THEM INCLUDING MOHAMMED EL ERIANFROM PIMCO SAY THERE'S A NEW NORMAL OUT THERE. YOU'RE LOOKING AT SLOWER GROWTH RATES YOU'RE LIKELY TO SEE OVER THE NEXT SEVERAL YEARS.YOU DISAGREE WITH THAT COMPLETELY?
MILLER: I THINK IT'S AN OPEN QUESTION. I HAVE A LOT OF RESPECT FOR MOHAMMED AND THE FOLKS AT PIMCO.THE DATA -- WE DON'T HAVE A VIEWABOUT -- WE DON'T MAKE FORECASTS ABOUT THE ECONOMY AND CONFORM A PORTFOLIO TO FORECAST.BUT THE DATA WE'RE SEEING WOULD INDICATE A MUCH STRONGER RECOVERY IN 2010 THAN CONSENSUS ESTIMATES. I THINK THE SECOND HALF OF 2010 WHEN THE STIMULUS BEGINS TO WIND DOWN, WHEN THE INVENTORY REBUILD BEGINS TO SLOW, THERE'S A QUESTION THERE, BUT IT'S JUST WAY TOO EARLY.THE CURRENT OUTLOOK IS VERY POSITIVE.
QUINTANILLA: WHY DO YOU THINK IT IS -- JUST TAKE IBM AS AN EXAMPLE IF IT'S SO WELL UNDERSTOOD WHERE THEY ARE IN THE PROFIT CYCLE, WHAT'S HAPPENING TO MARGINS AND REVENUE AND INCOME, WHY ARE MULTIPLES SO REPRESSED?WHY HASN'T THE STREET GOTTEN?
MILLER: THERE'S A GREAT LINE FROM THE CAMBRIDGE ECONOMIST WHO SAID THE ERA OF OPTIMISM DIES IN THE CRISIS BUT IN DYING IT GIVES ERA OF PESSIMISM AND THAT'S ERA BORN NOT AN INFANT BUT A GIANT.I THINK THE FACT PEOPLE HAVE LOST SO MUCH MONEY IN 2008, THATEQUITIES HAVE DONE NOTHING FOR TEN YEARS, THERE'S A GREAT DEAL OF CAUTION AND PESIMISM AND CONCERN OUT THERE,PEOPLE PROTECTING PRINCIPLE. THERE'S A LOT OF QUESTION ABOUT VALUATION OF MARKET, WHAT'S THE RIGHT MULTIPLE TO PUT ON IT.THAT'S WHY I THINK IBM IS A GREAT EXAMPLE. THE COMPANY HAS BEEN AROUND FOR ALMOST 100 YEARS. ALL THE DATA YOU WANT TO SEE IN THE WORLDTHEY'RE VERY TRANSPARENT. THEY'VE GONE THROUGH THIS CRISIS.EARNINGS -- OPERATING EARNINGS PER SHARE UP 15%, LAST FIVE YEARS.RECORD EARNINGS, RECORD MARGINS, SHARES DECLINE EVERY YEAR, GREAT BALANCE SHEET AND UNDER 12 TIMES THIS YEAR'S EARNINGS.SO I THINK THAT'S THE EXAMPLE OF WHAT'S AVAILABLE IN THE OVERALL MARKET. THAT'S HIGH QUALITY.YOU DON'T HAVE TO REACH FOR QUALITY --
QUINTANILLA: SO THERE'S BARGAINS IN PLAIN SIGHT, IN OTHER WORDS?
MILLER: ABSOLUTELY.
QUINTANILLA: YOU DON'T HAVE TO PORE THROUGH MID CAP TABLES --
MILLER: WE DO THAT.
KERNEN: INTERESTING. I CAN TELL YOU WHY NOT TO BUY IBM. I CAN TELL YOU WHAT THE SKEPTICSSAY. BUY BACK STOCK, MOVE FACTORIES OVERSEAS TO LOWER THEIR TAXRATE, NO TOP LINE GROWTH. ALL THE THINGS THEY'VE DONE FOR EARNINGS PER SHARE GROWTH HAS BEEN IN THE ABSENCE OF ANY TOP LINE GROWTH. THAT'S WHAT THE SKEPTICS WOULD SAY.
MILLER: IBM'S LONG-TERM ECONOMIC MODEL IS MID SINGLE DIGIT TOPLINE A LITTLE BIT FASTER THAN GLOBAL GDP. THAT'S WHAT THEY HAVE BEEN ABLE TO ACHIEVE BUT THE BEAUTY OF THE COMPANY IS THAT THE FINANCIALS ARE SO STRONG, THE MARGINS ARE SO STRONG, THEY CAN -- THEY HAVE SO MUCH EXCESS CASH, THEY CAN BUY BACK STOCK. THEY DOUBLED THEIR DIVIDEND IN THE LAST FIVE YEARS
KERNEN: PEOPLE LOVE TO HATE IT. I'M TAKING THE OTHER SIDE. THAT'S WHY IT STAYS CHEAP.
ROGERS: YOU'RE FAMOUS FOR BEING A CONTRARIAN AND WILLING TO TAKE BIG BETS ON SECTORS THAT ARE OUT OF FAVOR THAT EVERYONE HATES. WHERE ARE THOSE SECTORS NOW? WHERE ARE YOU FOCUSED ON?
MILLER: I'M GOING TO HIT IBM TILL IT SQUEALS HERE THIS MORNING, BUT ONE OF THE GREAT THINGS ABOUT THIS MARKET SU DON'T HAVE TO DIGTOO DEEPLY TO FIND GREAT VALUES, SUCH AS IBM. JPMORGAN IS A TOP QUALITY FINANCIAL.THEY HAVE EARNINGS POWER ON A NORMALIZED BASIS OF $6 TO $7 A SHARE. THE STOCK IS IN THE LOW 40S THE BOOK'S IN THE HIGH 30s. GREAT VALUE THERE.I DO THINK IN ITEMS OF THE CONTROVERSIAL AREAS, JOHN, THE FINANCIALS STILL REMAIN THE MOSTHEAVILY SHORTED GROUP IN THE MARKET. THEY COST PEOPLE -- COST OUR SHAREHOLDERS A LOT OF MONEY IN 2008. BUT BY AND LARGE, MY COLLEAGUE SAM PETERS AND HIS FUND IS BUYING A LOT OF THE REGIONAL BANK STOCKS.YOU GET NEGATIVE DEPOSIT PREMIUMS. SO YOU BUY THEM AT DISCOUNTS OF TANGIBLE BOOK VALUE WITH STRONG CAPITAL RATIOS.IF YOU WANT TO BE CONTROVERSIAL IN THE MARKET, YOU CAN DO THAT. BUT IF YOU WANT TO ACTUALLY JUSTBE STRAIGHT UP AND BUY THE BEST QUALITY, YOU CAN DO THAT AS WELL. WALMART'S GONE NOWHERE FOR TEN YEARS. YOU KNOW, IT EARNS 14% ON TOTAL INVESTMENT CAPITAL --
KERNEN: EARNINGS HAVE TRIPLED BUT STOCK --
MILLER: STOCKS DONE NOTHING.
KERNEN: HOME DEPOT, SAME THING, GENERAL ELECTRIC, SAME THING.
MILLER: WE'VE BEEN BUYING GENERAL ELECTRIC.
KERNEN: WHAT?
MILLER: GE.
KERNEN: SAY IT ONE MORE TIME.
MILLER: GE.
QUINTANILLA: YOU'RE BUYING IT.
MILLER: WE'VE BEEN BUYING GE, YES. THE STOCK. THE SYMBOL IS GE.
KERNEN: AND YOU'RE BILL MILLER.JPMORGAN MIGHT BE BETTER IF IT WAS YIELDING 2%, 3% OR 4%. IS THAT COMING BACK EVER?
MILLER: THE DIVIDEND IS A NICKEL A SHARE RIGHT NOW, A QUARTER.THE DIVIDEND WAS OVER $1.50 TWO YEARS AGO.
KERNEN: WILL THEY COME BACK?
MILLER: ABSOLUTELY. I THINK JAMIE WILL DO THAT AS SOON AS HE CAN.
KERNEN: GE, TOO?
MILLER: GE.
KERNEN: YOU BUY THAT?
MILLER: ACTUALLY, I SAW JEFF IMMELT OVER THE SUMMER AND ONE OF THE THINGS HE SAYS, ONE OF THE HARDEST DECISIONS HE MADE WAS TO CUT THAT DIVIDEND. ONE THING I THINK GE WILL DO IS RESTORE THE DIVIDEND. THEY'LL INCREASE IT AND RESTORE THE DIVIDEND IN THE NEXT COUPLE OF YEARS.
QUINTANILLA: THERE WERE MOMENTS WHEN MICHAEL JORDAN WOULD TAKE A SHOT THAT EVEN HE MAYBE THOUGHT HE COULDN'T MAKE AND IT WOULD GO IN. HE IMPRESSED EVEN HIMSELF. HAS AMAZON BEEN THAT FOR YOU OR CAN YOU THINK OF A STOCK WHERE IT'S BEEN A WINNER, MORE THAN SURPASSED YOUR EXPECTATION?
MILLER: AMAZON IS A COMPANY WE BOUGHT -- WE BEGAN TO BUY IT IN THE LATE 1990s AROUND 80 BUCKS A SHARE. I WAS CRITICIZED IN "THE WALL STREET JOURNAL" FOR DOING SO, CORRECTLY, BECAUSE IT WENT DOWN TOs 6 A SHARE IN THE NEXT THREE YEARS.I THINK OUR AVERAGE COST ON AMAZON RIGHT NOW IS AROUND $9 A SHARE AND IT'S -- THE STOCK'S, WHAT, $128, $129. THE THING -- THE GREAT THING ABOUT AMAZON, I THINK THAT COMPANY -- JEFF BAZOS IS THE MOST RATIONAL CEO. THEY MAKE GREAT DECISIONS.IT'S BEEN A WONDERFUL INVESTMENT. IT'S NOT A CHEAP STOCK ANYMORE, BUT THE OUTLOOK -- YOU KNOW, THEREVENUES ARE 20-PLUS BILLION DOLLARS. WALMART'S REVENUES AND THERE'S ALOT RAMP UP ON AMAZON IN THE NEXT FIVE TO TEN YEARS. MAYBE NOT THE NEXT FIVE TO TEN WEEKS BUT THE NEXT FIVE TO TEN YEARS
QUICK: BILL, YOU MENTIONED YOU LIKE JPMORGAN AND FINANCIALS. ALSO BANK OF AMERICA IS ANOTHER FINANCIAL YOU LIKE?
MILLER: ONE OF THE THINGS THAT'S HAPPENED IN THE FINANCIAL CRISIS, TYPICALLY HAPPENS IN FINANCIAL CRISES, IS THAT THE INITIAL POLICY RESPONSE TO SOMETHING LIKE A BEAR STEARNS OR WASHINGTON MUTUAL IS HAVE THEM COMBINE WITH A LARGER, STRONGER INSTITUTION.AND I THINK, YOU KNOW, I THINK I SAW A THING WITH WARREN BUFFETT WHERE HE SAID KEN LEWIS WAS ONE OF THE HEROES OF THE FINANCIAL CRISIS BECAUSE HE BOUGHT MERRILL LYNCH AT A DECENT PRICE AND THAT TENDED TO GIVE SOME CONFIDENCE, ALBEIT SHORT-LIVED CONFIDENCE, IN THE OVERALL MARKET. BANK OF AMERICA IS GREAT. EARNING POWER OF $3.50 OR SO AND THE STOCK IS $16. AND, YOU KNOW, COUNTRYWIDE, THEY BOUGHT AT A BIG DISCOUNT TO BOOK VALUE. BANK OF AMERICA HAS 23, 24% MARKET SHARE IN HOME MORTGAGES IN THE COUNTRY.FABULOUS MARKET SHARE. GREAT FRANCHISES. IT'S -- YOU KNOW, LONG TERM, IT'S GREAT.
KERNEN: WHEN YOU SAY THAT BARGAINS AREN'T HARD TO FIND, WHAT YOU'RE SAYING IS MAYBE THE S&P ITSELF IS NOT INCREDIBLY EXPENSIVE RIGHT NOW.
MILLER: THE S&P IF YOU TAKE THE TOP TEN NAMES IN THE S&P TODAY, AND LOOK AT THE TOP TEN NAMES TEN YEARS AGO, THE TOP TEN NAMES TEN YEARS AGO TRADED OVER 30 TIMES EARNINGS, YOU KNOW, 0.8% DIVIDEND YIELD. RIGHT NOW THEY TRADE AROUND 12 TIMES --
KERNEN: THAT WAS A BLUE CHIP BUBBLE. WHAT SHOULD THEY TRADE AT?
MILLER: BETWEEN 14 AND 18 TIMES EARNINGS.
KERNEN: SO THEY'RE NOT EXPENSIVE A LOT OF PEOPLE THINK THIS MARKET IS SO OUT OF CONTROL RIGHT NOW, BILL, IT'S A SUGAR HIGH AND FUNDAMENTALS DON'T BACK ANY OF IT.NONE OF IT'S JUSTIFIED.THERE'S A DAY OF RECKONING COMING.THE FACT IS, 11 YEARS WE'VE GOT NOTHING.
MILLER: EXACTLY.
KERNEN: AND EARNINGS HAVE CONTINUED TO GO UP.
MILLER: WHEN PEOPLE TALK ABOUT THAT, THEY'RE LOOKING AT COMPANIES DISCOUNING MID-CYCLE EARNINGS. A LOT OF CYCLICALS, INDUSTRIALS, THEY'RE DISCOUNTING. YOU DON'T HAVE TO REACH FOR THOSE NAMES WHEN YOU CAN BUY COMPANIES LIKE JOHNSON AND JOHNSON, PFIZER, MERCK --IBM
KERNEN: I'VE HEARD OF ALL OF THOSE
ROGERS: DOES THAT MEAN YOU'RE LESS INTERESTED IN SOME OF THOSE SECTORS YOU WERE EARLY IN, LIKE THE HOUSING SECTOR SOME PEOPLE FEEL NOW ARE BUBBLING AROUND THE BOTTOM AND HAVE A LOT OF UPSIDE FROM HERE?
MILLER: NO. IN THE OPPORTUNITY TRUST WE HAVEA PRETTY GOOD POSITION IN HOUSING STOCKS.
KERNEN: YOU'RE DOWN ON THAT, RIGHT?
MILLER: I'M SORRY?
KERNEN: ARE YOU DOWN ON THAT POSITION, IN HOUSING?
MILLER: YEAH. WE'RE A LITTLE EARLY ON THAT ONE. YEAH, BUT I THINK, JOHN, HOUSING THERE'S A GREAT PAPER BY ED LAMBERT CALLED HOUSING IS THE ECONOMY. AND UNTIL HOUSING -- HOUSING SHOULD STABILIZE THIS YEAR. THE CASE-SHILLER INDEX PRICES ARE UP SIX MONTHS IN A ROW.YEAR OVER YEAR PRICES WILL STOP DECLINING IN THE SPRING OF THIS YEAR.
QUINTANILLA: A COUPLE CITIES ARE ALREADY THERE.
MILLER: A COUPLE CITIES ARE THERE, THAT'S EXACTLY RIGHT. BUT THE HOUSING STOCKS NOW ARE ON A PRICE TO BOOK BASIS, SOME OF THEM -- LENNAR IS 1.1 TIMES BOOK VALUE. THE BOOK HAS BEEN WRITTEN DOWN SIGNIFICANTLY. WE'RE 5-600 THOUSAND HOUSING STARTS AGAINST A MILLION 1 MILION TO DEMAND INVENTORIES ARE COMING DOWN. THE BIG QUESTION IS SHADOW INVENTORIES. ARE THERE GOING TO BE A LOT MORE STUFF COMING ON THE MARKET CLEARLY THE FORECLOSURE PROBLEM IS GOING TO DRAG HOUSING OUT OVER TIME.BUT THE KEY -- THE KEY THERE IS THAT HOUSING, YOU KNOW, THERE'S A 1.2 MILLION DEMAND FOR HOUSING OVER TIME.COMPANIES LIKE, YOU KNOW, MAGIC THAT DOES HOME MORTGAGE INSURANCE, IT'S TRADING AT ROUGHLY HALF OF WHAT IT'S WORTH RIGHT NOW.IT'S LOSING MONEY. IT WILL BE MAKING MONEY IN A YEAR OR TWO. YOU KNOW, YOU SHOULD DO WELL IN THOSE KINDS OF NAMES.
QUICK: WE'LL SNEAK IN A QUICK BREAK. WHEN WE COME BACK, WE'LL HAVE MORE OF THIS EXCLUSIVE INTERVIEW WITH BILL MILLER OF LEGG MASON AND OUR GUEST HOST JOHN ROGERS.
KERNEN: WE'RE BACK WITH THE PORTFOLIO MANAGER WHO BEAT THE S&P 500 15 TIMES IN A ROW BILL MILLER.AND OUR GUEST HOST JOHN ROGERS. WE HAD A DISCUSSION OFF CAMERA, ABOUT HOW YOUR STYLE INVESTING WORKS WELL BECAUSE IT'S USUALLY NOT DIFFERENT THIS TIME RIGHT ONCE IN A WHILE IT'S DIFFERENT THIS TIME.
MILLER: THE FINANCIAL CRISIS WAS A DIFFERENT ANIMAL, YES.
KERNEN: ONE TIME IN YOUR LIFE, REALLY, IN ALL OF OUR LIVES HOW SURE ARE WE THAT IT DEFINITELY IS OVER NOW AND THAT WE'RE NOT FACING SOMETHING ELSE LIKE THAT AGAIN?
MILLER: IT'S ALWAYS POSSIBLE, BUT, YOU KNOW, THE MARKET, THE WAY THE MARKET OPERATES, YOU KNOW, WE'VE GOT MEAN VARIANCE ANALYSIS, MARKOWITZ AND EVERYONE KNOWS THEY ARE THE SO-CALLED FAT TAILS MEANING THAT IMPROBABLE EVENTS HAPPEN MORE THAN THEY TYPICALLY OUGHT TO IN A NORMAL DISTRIBUTION. BUT ACTUALLY THE MARKET FOLLOWS A POWER LAW DISTRIBUTION, WHICH MEANS THAT THERE TENDS TO BE -- IT'S LIKE EARTHQUAKES, PROBABLY THE BEST EXAMPLE. A LOT OF LITTLE EARTHQUAKES, LITTLE CORRECTIONS IN THE MARKET, AND THEN BIGGER EARTHQUAKES, RECESSIONS AND THEN EVERY SO OFTEN THERE'S A BIG ONELIKE THE DEPRESSION OR A MONSTER EARTHQUAKE. BUT THEN THERE -- SO WHAT HAPPENS IS, OF COURSE, THE LONGER YOU GO WITHOUT AN EARTHQUAKE, PEOPLE LET THEIR EARTHQUAKE INSURANCE LAPSE. AND THEN WHEN THERE'S A BIG EARTHQUAKE, THEY GET TERRIFIED AND THEY ALL WANT EARTHQUAKE INSURANCE BUT THEN THE DANGER'S PASSED BECAUSE THE IMBALANCES ARE IN THE PROCESS OF BEING CORRECTED AND THE TECH TONIC PLATES. IT'S SIMILAR IN THE MARKET. WE ARE HAVING AFTERSHOCKS, DUBAI, GREECE SITUATION.THOSE ARE AFTERSHOCKS.RIGHT NOW I THINK THE ISSUE IS THAT PEOPLE ARE TERRIFIED BECAUSE OF THE FINANCIAL EARTHQUAKE BUT THE RISKS ARE ACTUALLYMUCH LOWER THAN CURRENTLY BEING DISCOUNTED AND PERCEIVED.
QUICK: NOW IS THE TIME TO LET YOUR INSURANCE LAPSE AND BE RECKLESS?
MILLER: IT'S ACTUALLY -- I MEAN, I DO BELIEVE IT'S TIME -- LAST YEAR WAS THE CLASSIC TIME TO TAKE MORE RISK.YOU COULD TAKE RISK ALL ON THE CAPITAL SPECTRUM. ANYTHING OTHER THAN TREASURIES. JUNK BONDS HAD AN INCREDIBLE YEAR. BUT NOW THOSE SPREADS ARE CLOSE TO NORMAL. THEY'RE PROBABLY GOING TO GO THROUGH NORMAL BECAUSE PEOPLE ARE STILL AFRAID AND THEY REALIZE THAT IF I GO HIGHER IN THE CAPITAL STRUCTURE, THAT I'M MORE PROTECTED. SO THAT'S LIKELY TO ACTUALLY GET EVEN -- GO EVEN DOWNWARD. SO I THINK EVEN JUNK BOND ARE STILL ATTRACTIVE. EQUITIES, AFTER TEN YEARS OF NO RETURN, AND AFTER PEOPLE BEING TERRIFIED OF EQUITIES, I THINK IT'S A LOT LIKE -- IT'S LIKE THE POST-WORLD WAR II PERIOD WHEN WE HAD A DEPRESSION, A WAR, INTEREST RATES WERE 2%, 3%, BUT YOU COULD BUY STOCKS AT HIGHER DIVIDEND YIELDS AND GET ON BONDS. YOU CAN BUY QUALITY STOCKS TODAY WITH THE SAME THING.PEOPLE WERE AFRAID OF A DEPRESSION AGAIN. NOW THEY'RE AFRAID OF THE FINANCIAL EARTHQUAKE. NOT THAT IT CAN'T HAPPEN, IT COULD, BUT THE RISKS ARE LOW.
KERNEN: WE HAVE BIG CHANGES, TECTONICCHANGES IN WHO HAS ALL THE CAPITAL IN THE WORLD, LIKE CHINAAND INDIA.IT'S NOT EXACTLY THE SAME THIS TIME AS IT WAS 20, 30 YEARS AGO WHEN YOU WERE DOING THIS. BUT IF YOU BUY MULTINATIONALS LIKE THE ONES YOU MENTIONED, ARE YOU TAKING INTO ACCOUNT HOW THINGS ARE SHIFTING TO THAT PART OF THE WORLD?
MILLER: THE BEST VALUE IS TO TAKE ADVANTAGE OF CHINA, INDIA, THE BRICKS ARE THINGS LIKE IBM.THE BIG U.S. MULTINATIONALS GET ROUGHLY HALF OF THEIR EARNINGS ARE SOURCED OVERSEAS. AND THEY'RE AVAILABLE AT, YOU KNOW, 10, 11, 12 TIMES EARNINGS WITHOUT THE GOVERNANCE RISKS AND WITHOUT THE VARIOUS POLITICAL RISKS YOU SEE SEE OVERSEAS.
KERNEN: IN COMMODITIES -- GO AHEAD.
ROGERS: YOU HAD THIS GREAT RECORD AND YOU'VE BEEN AN EXTRAORDINARY STOCKPICKER.WE WENT THROUGH HOPEFULLY THIS ONCE IN A LIFETIME GIANT EARTHQUAKE. WHAT WERE THE MAJOR LESSONS YOU LEARNED AS A STOCK-PICKER DURING THAT PERIOD THAT ARE RELEVANT FOR TODAY'S MARKETS?
MILLER: WELL, THERE ARE MULTIPLE LESSONS, IF WE HAD THREE, FOUR HOURS I CAN PROBABLY GO THROUGH ALL OF THE MISTAKES THAT WE MADE IN THIS OVERALL MARKET. BUT I THINK ONE OF THE CERTAINLY LESSONS THAT -- THAT I LEARNED, THAT WE LEARNED IS YOU REALLY CAN'T RULE ANYTHING OUT. I HAD THOUGHT AFTER STUDYING FRIEDMAN AND SCHWARTZ ON THE DEPRESSION -- ACTUALLY HAD A CONVERSATION WITH BEN BERNANKE BEFORE HE BECAME HEAD OF THE FED, HAVING READ HIS STUFF ON THE DEPRESSION.YOU CAN TAKE THE GREAT DEPRESSION OFF THE TABLE. EVERYTHING SINCE WORLD WAR II IS ON THE TABLE.INVERTED YIELD CURVES, FINANCIALCRASHES.ACTUALLY TAKING THE DEPRESSION OFF THE TABLE WAS WRONG. WE CAME CLOSE TO CERTAINLY -- WECERTAINLY DISCOUNTED IN THE CREDIT MARKETS LOSSES GREATER THAN THE GREAT DEPRESSION. NOTHING'S OFF THE TABLE, NUMBER ONE. AND I THINK NUMBER TWO -- AND MAYBE MORE IMPORTANTLY FOR INVESTORS -- IT'S REALLY TRYING TO UNDERSTAND THE DIFFERENT TYPES OF CRISES THAT CAN OCCUR.THERE ARE ROUGHLY TWO TYPES, LIQUIDITY-DRIVEN CRISIS THAT'S SOLVED BY INJECTIONS OF LIQUIDITY.CRASH OF '87 IS A GOOD EXAMPLE. FED PUMPS IN A LOT OF LIQUIDITY, THAT SOLVES THE PROBLEM.THEN THERE ARE THE SO-CALLED BALANCE SHEET RECESSIONS OR COLLATERAL DRIVEN OR ASSET-BASEDRECESSION.MY FRIEND JOHN JONACOPOLIS AT YALE HAS DONE A LOT OF WORK AT THIS. THOSE ARE VERY DIFFERENT ANIMALS.THAT WAS THE GREAT DEPRESSION.THAT WAS THIS THING. HOUSING VALUES FALLING. THAT WAS UNDERMINING PEOPLE'S BALANCE SHEET.AND THEN THE MARKET COMING ON TOP OF THAT.AND THOSE THINGS ARE -- THOSE THINGS ARE ONLY SOLVED BY GLOBAL COORDINATED ACTION TO STABILIZE COLLATERAL VALUES.THAT HAPPENED WITH T.A.R.P. THAT IS WHAT T.A.R.P. WAS SUCH A -- IT'S STILL CONTROVERSIAL.BUT WHEN THE GOVERNMENT CAME IN WITH T.A.R.P. AND PRESERVED EQUITY VALUE INSTEAD OF WIPING IT OUT WITH FANNIE, FREDDIE, LEHMAN, WAMU, THAT WAS THE TURNING POINT.
QUINTANILLA: BACK WITH THE BIG STORY IN BARRON'S AND EVERYBODY ELSE, COULD MILLER'S STREAK CONTINUE, HOW IMPORTANT WHAT'S THAT TO YOU? DID IT BOTHER YOU WHEN PEOPLE WERE PILING ON AFTER THE STREAK WAS BROKEN?
MILLER: WELL, YOU KNOW, I THINK MANNY INNAPEUR HAS A STREAK OF 10 OR 11 YEARS AND I SAW A QUOTE FROM SOMEBODY THERE SAYING, IT WILL BE A RELIEF WHEN THE STREAK IS OVER. SO I'M SAYING YOU WANT TO UNDERPERFORM?THAT DOESN'T MAKE SENSE TO ME.WHEN PEOPLE ASK ME THAT QUESTION AFTER 15 YEARS, IT'S NOT THE STREAK PER SE IS IMPORTANT BUT OUTPERFORMING, PROVIDING VALUE TO CLIENTS, THAT IS IMPORTANT. YEAH, IT WAS BAD WHEN THAT -- WHEN THAT HAPPENED.
KERNEN: BILL, FIRST TIME WE ARE AT 1600-PLUS ON THE S&P, MAYBE WE DIDN'T DESERVE IT.WHEN WILL WE DESERVE IT AGAIN, THE MARKET ITSELF? AND HOW MANY YEARS BEFORE WE SEENEW HIGHS? YOU'RE CONFIDENT WE WILL SEE NEWHIGHS?
MILLER: ULTIMATELY.
KERNEN: ULTIMATELY. YEARS AND YEARS AND YEARS.
MILLER: JOHN TEMPLETON MADE COMMENT, DON'T KNOW WHERE THE NEXT THOUSAND POINTS ARE BUT I KNOW WHERE THE NEXT 10,000 IS, THAT'S HIGHER. RIGHT NOW WE'RE ON THE S&P 1130 OR SOMETHING LIKE THAT.
KERNEN: IT WOULD BE NICE TO KNOW. IF WE KNEW FOR SURE WE WOULD HIT NEW HIGHS, YOU COULD BUY STUFF AND BE CONFIDENT.
MILLER: THE ECONOMY WILL GROW LONG TERM. PROFITS WILL GROW LONG TERM.THE MARKET IS NOT EXPENSIVE. WE'RE LOWER THAN WE WERE AFTER LEHMAN BROTHERS WHEN THE WORLD WAS FALL ING PART AND NOW THE WORLD'S GETTING BETTER.THAT'S WHY WE'RE GOING TO HAVE STRONG EMPLOYMENT GROWTH IN 2010. PROFITS' GROWTH, EVERY TIME SERIES WE HAVE SEEN IN GDP NUMBERS AND IN CORPORATE PROFITSEXPECTATIONS HAVE BEEN REVISED HIGHER.EVERY MONTH SINCE LAST JANUARY A YEAR AGO.THEY WILL BE REVISED HIGHER AGAIN AFTER THIS REPORTING SEASON. I THINK CLEARLY THE TREND IN THIS CASE IS IN FAVOR OF EQUITY INVESTORS AND BONDS ARE JUST -- BONDS ARE NOT TERRIBLY ATTRACTIVE AT THE -- CERTAINLY THE SAFEST BONDS.
ROGERS: IN THIS ENVIRONMENT, MORE AND MORE PEOPLE ARE PRESSURING MONEY MANAGERS LIKE YOURSELF TO BE WELL DIVERSIFIED, OWN A LITTLE BIT OF EVERYTHING AND NOT TAKE ANY BENCHMARK RISK. YOU WOULD BE WILLING TO HAVE BIG POSITIONS IN CONCENTRATED PORTFOLIOS. CAN YOU TALK ABOUT THE IMPORTANCE OF THAT IN THIS ENVIRONMENT?
MILLER: THERE'S A GOOD ACADEMIC EVIDENCE CALLED ACTIVE SHARE, THE ACTIVE SHARE YOU HAVE IS CORRELATED WITH OUTPERFORMANCE. THAT MEANS BASICALLY HOW FAR AWAY YOUR POSITIONS ARE RELATIVE TO THE BENCHMARK. IN MOST MARKETS, THERE ARE THINGS THAT ARE CHEAP AND THERE ARE THINGS THAT ARE EXPENSIVE. TO ME THE ISSUE IS OWNING THINGS THAT ARE DEMONSTRABLY CHEAP.THEY CAN KEEP CHEAPER. VALUATIONS SPREAD CAN GET WIDER. THEY ALWAYS RUN FAIRLY CONCENTRATED PORTFOLIOS.THEY ARE DIVERSIFIED. WE DON'T OWN FOUR NAMES WE OWN 40 NAMES, 40 OR 50 NAMES. BUT RELATIVE TO THE BENCHMARK, IT'S A VERY SKEWED PORTFOLIO.IT'S WHERE THE LONG-TERM VALUES ARE.
KERNEN: WE ARE NOT FINISHED TALKING TO YOU BUT WE HAVE TO GO.OBVIOUSLY YOU HAVE TO COME BACK SO WE CAN TALK TO YOU SOME MORE. SORRY TO INFORM YOU OF THAT BUT WE DIDN'T FINISH EVERYTHING WE NEEDED TO DO. MR. MILLER, GREAT TO HAVE YOU.
MILLER: THANKS, GUYS.
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