Peter Boockvar's Contrarian Play: Sell US Stocks, Buy Commodities and Emerging Markets

The carnage in commodities continues to make headlines and notable investment gurus like Gary Shilling think it's far from over.

Then again, if you're a contrarian value investor like our most recent guest, Peter Boockvar, Chief Market Analyst at the Lindsey Group, this is about the right time to buy.

When it comes to the stock market, however, Peter has a very different view. "This is most likely a bear market," he said. "That means rallies should be sold...and playing defense and holding some cash is probably a prudent strategy right now."

Here are a few excerpts from his recent podcast interview (preview below). Subscribers can access the full audio by logging in and clicking here.

Peter, what is your view on stocks here?

I think that the odds continue to grow that we've entered a bear market...[and] that means rallies should be sold, that means the market will get cheaper, and playing defense and holding some cash is probably a prudent strategy right now.

What sort of things are you looking at for why stocks are heading lower?

Up until the recent correction we were in the 3rd longest bull market of all time at the peak...and now we have a lot of the things that drove that bull market like easy money from the Fed of course, which is not getting any easier...and a Fed that is now being perceived as more impotent rather than as stimulative; [also] profit margins have peaked out, stock buybacks are now slowing, earnings growth and revenue growth is now slowing as a result of that; so a lot of things that drove us to this place are slipping away and that is why I'm foreseeing from a fundamental perspective the backdrop for a bear market and we are certainly seeing the technical backdrop with more and more stocks dropping out... Even with this sharp rally we've seen over the past week, there's still about 75% of stocks on the NYSE that are trading below their 200-day moving average. That's not the sign of a healthy market and I think this all comes in the context of global growth that continues to slow and the lack of bullets that central bankers have.

How far lower do you expect the market to go given your outlook?

It's always difficult...I would just be throwing out a guess by throwing out numbers. I don't necessarily think we'll see an '08 or 2000 in the sense of a 50% decline but the average bear market is probably 35%. So from being down 35% to get down to 50% isn't that much extra but I would not be surprised if we are at least down 30-35%.

Tell us why you're bullish on commodities.

I think the commodity space that's been in a four year bear market now to me is showing signs of bottoming out as the supply response to the crash in demand is beginning to take hold. Whether that's the final rollover in US production, a 60% decline in the US rig count, shut-ins--almost weekly it seems in copper--and the dollar finally weakening here on the likelihood that the Fed is not going to raise interest rates, all combining in my opinion in a bottom in commodities and commodity stocks, commodity currencies, commodity emerging markets and commodities themselves to create tremendous value with anyone with a few year time horizon... I see tremendous value in the commodity space, particularly precious metals.

You mentioned commodity-exporting emerging markets. There's a lot of bearish sentiment on emerging markets right now so this would definitely be a contrarian play, wouldn't it?

Yes, you look at the Brazilian stock market, which full disclosure I own as of late. On a dollar basis it was down 80% so people are very bearish on emerging markets...but commodity prices if I'm right and they stop going down and maybe actually go up, I think there's tremendous value in the emerging markets that have been just crushed by this decline in commodity prices...and, yes, I'm sending very a contrarian [message]. You can probably count on one hand the amount of people that are saying that I like commodities and it seems that every single day we get bombarded with a daily dose of emerging markets are imploding and commodities are going to zero...but commodities don't go to zero and emerging markets I think will get bailed out potentially from commodity prices no longer declining.

Listen to this full interview with Peter Boockvar, Chief Market Analyst at the Lindsey Group, by logging in and clicking here. For a complete archive of our broadcasts and podcast interviews on finance, economics, and the market, visit our Newshour page here or iTunes page here. Subscribe to our weekly premium podcast by clicking here.

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