NEW YORK (Reuters) - With U.S. stocks in the worst bear market since World War II, now would be a good cyclical time to invest in equities, Michael Steinhardt, a legendary hedge fund manager, said on Monday.
Steinhardt, who closed down his Steinhardt Partners hedge fund in 1995, said he is loathe to express an opinion about market conditions, but said he didn’t think the market had bottomed yet.
“I don’t think that this is the bottom, that we’ve hit the bottom, although it wouldn’t shock me if it were the bottom,” Steinhardt told the Reuters Investment Outlook Summit in New York.
But Steinhardt, whose hedge fund delivered a 24.5 percent annual return after fees over almost three decades, also said the market’s plunge made it a good time to buy stocks. The S&P 500 index is down about 38 percent year to date, and is on pace for its worst year since 1937.
“I think now would be a good cyclical time to go into equities, wouldn’t you?” he said.
Steinhardt said that if over the past 50 years you could have earned a high single-digit annual return, “you’d be doing well.”
However, people now demand more. “Most people would not be happy with that,” he acknowledged.
Steinhardt, who now channels his energy into philanthropy, said it was difficult for him to grasp the consequences of the global financial crisis, especially the enormous amount of debt the U.S. government eventually will take on.
“I don’t know and no one else knows, the impact of all that is happening and will soon happen in terms of what the government is about to throw into the world,” he said.
“The flow of dollars to be inappropriately and promiscuously thrown into the economy, it will be vast,” he said. “Things are happening here that I find so negative, so far afield from what our system will be.”
The government’s intervention in the U.S. economy troubles Steinhardt, who said American automakers should not be bailed out, and he laments the unwillingness of Americans to suffer any pain for their mistaken decisions.
The United States should strive to make the best, most inspiring automotive industry in the world, but that’s unlikely considering the current management in Detroit, he said.
Management has “done a terrible job for a long, long time,” he said.
Steinhardt said if the government throws cash at the crisis it might lead to a quick recovery under President-elect Barack Obama, an outcome Americans would embrace.
“My inclination at the moment is that because we don’t allow short-term pain, this thing might turn out to be shorter and villain-less, and Obama will turn out to be a hero even before he’s a president,” Steinhardt said.
Still, the U.S. economy is likely to grow “at a relatively lower level for a period of time. ... I don’t think that’s necessarily so bad if you can deal with short-term pain,” he said.
Editing by Leslie Adler