Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Sunday, February 12, 2006

Local adviser sees lull in 2007

By Greg Wiles
Advertiser Staff Writer


spacer spacer


Irwin Yamamoto, publisher of the Yamamoto Letter, says he may recommend investors buy stocks in a few months if the market cools down a bit. Currently, stocks are about 40 percent overvalued compared to historic price-to-earnings ratios.

Until then, he is recommending his clients use Web sites such as BankRate.com to find the highest bank money market returns and remain there until the Dow Jones Industrial average declines to around the 10,000 level.

He said that opportunity could occur in the next several months, allowing investors to get in and out of the market before the end of the year.

As for what to buy, Yamamoto said many of his recommendations come from scouring stocks that are experiencing one-year lows.

"Most of them deserve to be there, but you're going to find some jewels," Yamamoto said.

He's also keeping an eye on buying some China stocks that are now high-priced. A buying opportunity could occur there in six to nine months if the Chinese government raises interest rates and stock prices decline, he said.

spacer spacer

The U.S. economy is adding jobs, leading to unemployment that's the lowest in at least 4 1/2 years. The stock market posted healthy gains in January, with the Standard & Poor's 500 Index rising at a 33 percent annualized rate.

So why is Irwin Yamamoto, publish-er of the Kahu-lui-based investment news-letter The Yamamoto Forecast, sour on most investments? Yamamoto, 50, says the U.S. economy may sink into a recession next year, and is telling clients to stay out of stocks, bonds and gold.

"In a funny way, the economy is OK right now, but I think the second half, especially in the fourth quarter, you're going to see some bad economic numbers," said Yamamoto, who charges $350 annually for his monthly newsletter. He doesn't say how many subscribers he has, but says they stretch from Japan to Germany.

There could be "a deep economic slowdown next year or even a recession," he said.

Following Yamamoto's advice to stay in bank money market accounts in January would have been costly for investors looking for quick returns. Yet the Chaminade University business graduate ranks highly with two services that track the performance of investment newsletters. Greenwich, Conn.-based Timer Digest ranks Yamamoto as the second-best performer out of 100 newsletters when it comes to long-term stock market timers during the past five years.

In the four years The Hulbert Financial Digest has tracked him, Yamamoto's advice has yielded an average 17.9 percent annual gain, or about three times the gain for the Wilshire 5000 index during that period.

While last year Yamamoto's return as computed by Hulbert was a negative 0.7 percent, it followed a better-than-average gain in 2004, said John Kimble, head analyst for Annandale, Virginia-based Hulbert.

"He's actually done well," Kimble said.


Still, it's not easy to find many people who agree with Yamamoto, who prides himself on contrarian views. On Super Bowl Sunday, Yamamoto took in a movie, avoiding crowds he might typically have encountered, and arrived home in time to catch the last eight minutes of the football game.

Likewise, in an era when stock market news is instantaneously zapped across CNBC's screens or piped to investors on pricey data systems, Yamamoto doesn't have a Web site and doesn't send alerts via e-mail.

His six-page newsletter has the same typewritten appearance it did two decades ago and is still mailed to investors. Yamamoto is one of maybe a dozen investment newsletter authors remaining faithful to deliveries via the Postal Service, said Jim Schmidt, publisher of Timer Digest, which is sold to wealthy individuals, hedge funds and brokers.

"That's a dying breed," said Schmidt, saying the group usually are among the more effective market timers. "It's amazing."

Yamamoto is also one of the few investment newsletter authors recommending people stay out of the stock market now, according to Hulbert's Kimble, who tracks more than 180 newsletters.

"There are some that are in cash right now, but not many," Kimble said. Even many of the most bearish newsletter advisors have a small portion, maybe 15 percent, of their portfolios in the market, he said.


Moreover, aside from billionaire investor George Soros, former Federal Reserve economist James F. Smith and a few others, not many are siding with Yamamoto in his view about a possible 2007 recession. The U.S. economy last year proved to be resilient, producing a 3.5 percent increase in gross domestic product despite a spike in oil prices, a disastrous hurricane and worries about the Iraq war.

This year, GDP is forecast to rise 3.4 percent, according to a poll of economists by the Bloomberg News Service.

Like Soros, Yamamoto said recent interest rate hikes will slow economic growth next year as costs for business borrowing increase. Yamamoto's February newsletter recites a litany of other potential negatives for the U.S. economy, including record consumer debt, slowing retail sales growth and a drying up of consumer spending fueled by mortgage refinancings.

So why, then, did the Dow Jones Industrial average reach 11,043 in January, its highest since June 2001?

"Usually, what happens in a recession is that everything looks great in the market and the economy before the recession is known," Yamamoto said by telephone. "It's normal that every five to six years, on average, you have a recession."

The last U.S. recession occurred from March to November 2001. If an economic downturn does occur, expect Yamamoto to go against what most other newsletter writers say. He'll suggest investors jump into the market when he believes the recession is nearing an end.

"As a contrarian, when they're bullish, I'm negative," said Yamamoto. "And when they're negative, I'm bullish."

Reach Greg Wiles at gwiles@honoluluadvertiser.com.