U.S. market has "improved radically": Bogle
BOSTON (Reuters) - The fundamentals of the U.S. stock market have "improved radically" and declines in valuations to five-year lows are overblown, legendary investor and Vanguard Group founder John Bogle said on Tuesday.
Bogle's comments, coming as U.S. stocks rose in their biggest Election Day rally, underlines an emerging streak of optimism on Wall Street over corporate earnings and the prospect of more measures to prevent the financial crisis from turning into a global recession.
"It seems to me that people have lost sight of the fact that the fundamentals have improved radically," said Bogle, who launched the colossal $97 billion Vanguard 500 Index VFINX.O in the mid-1970s as a low-cost investment strategy.
The hard-charging, 79-year-old founder of the nation's second-largest largest mutual fund company said he expected the earnings of companies in the Standard & Poor's 500 Index .SPX to grow at a rate of about 7 percent annually over the next decade.
That should pave the way for returns on U.S. stocks of around 10 percent, according to his calculations that combine a projected earnings growth rate with a three percent dividend yield generated by stocks in the S&P-500 Index.
"The value of the U.S. stock market was $18 trillion a year ago. And now it's about $9.5 trillion or let's call it $10 trillion with today's rally. Anyone who believes that American business is worth $8 trillion less than it was a year ago I think is a fool," he told Reuters in a telephone interview.
"Will it be worth a lot less than that and the market is anticipating it is a reasonable question," he added. "Was it somewhat overvalued at the start is an even more reasonable question, one which I would answer in the affirmative.
'HOT AIR IN THE SYSTEM'
"So there was some water in the system, some hot air in the system, and we blew it out, but I think we have overblown it," he said.
Bogle left the Vanguard helm after a 1996 heart transplant, and now often castigates the mutual fund industry as a marketing vehicle run not so much by investment professionals on behalf of investors as by short-term minded entrepreneurs.
"Institutional money managers, including the managers at mutual funds, have a lot to answer for," he said.
"If they were professional security analysts, where were they when they looked at the balance sheets of those banks?" he said in reference to banks that took huge write-downs for their exposure to losses in subprime mortgages that snowballed into the worst financial crisis since the 1930s.
"They joined the speculative frenzy, turning over stocks 100 percent a year. It has nothing to do with investing. It's a great big marketing business," he said.
Bogle, who maintains an office in the same building as Vanguard's executive suite on the company's sprawling suburban campus near Philadelphia, said he had no plans to reduce his busy workload as a vocal critic of industry excesses even as he approaches his 80th birthday in May.
His latest book, "Enough: The True Measures of Money, Business, and Life", hits store shelves next week. He maintains a hectic schedule of delivering speeches and appearances on national media. And he runs the Bogle Financial Markets Research Center, which consists of him and three assistants.
"I live life one day at a time," he said. "When my mind gets bad, I hope that somebody, my wife maybe or somebody here, will say 'you are not the man you used to be'."
"And, of course, I'm not in terms of physical strength and endurance and all that. But I think in terms of moral strength, writing strength, intellectual strength, I am as good as I am going to get," he added.
(Editing by Leslie Gevirtz)
