Thomas F. Loeb recently spent a little time maxing out on equities. Not that he was stressed. Far from it. Mr. Loeb increased Mellon's equity exposure to fully invested for a four-month period between July and early December.
The firm recently scaled back to 90%, following a quick runup in prices. But Mr. Loeb is still 100% bullish on stocks for 2003.
"We're extraordinarily bullish," he said. "Over the next 12 months, we are expecting an extraordinary return to equity."
He compares the attractiveness of stocks now to what he saw at the end of 1974, in 1977, in 1980 and in 1986. In the 12-month periods following those when equity markets were undervalued, Mr. Loeb said, the average equity market return was 26%.
"We can't say the return will be 26%," Mr. Loeb cautioned. "But when the risk premium narrows, equities tend to go up turbulently, very fast. The risk premium is stretched like a rubber band right now."
War with Iraq would not change Mr. Loeb's outlook much. He thinks investors are overly fearful right now, and more risk is being imputed to equity returns than is practical. Hence, prices are lower than they should be.
"I can't say precisely when, but I do know that this, too, will change," Mr. Loeb said.
Driving Mr. Loeb's assessment is a fundamental belief that the quality of corporate earnings is getting better. Cash flow rates are improving.
Inflation will remain in check, with little or no change from 2002.
Thomas F. Loeb
Co-founder, chairman and CEO
Assets under management: $79.3 billion
S&P 500: 967 at year-end
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