Expert Advice: Think Bonds

The gist of Ronald Reuss’ message is simple - go long.

The senior vice president for Piper Jaffray Companies said money placed in overseas markets or 30-year U.S. Treasury bonds may yield the best returns in the coming months.

By historic standards, he said, U.S. stocks are fully valued.

With inflation around 2 percent, as it is now, the 7 percent yields on bonds are very attractive, Reuss said. And the slowdown already gripping the economy could drop rates below 6 percent by the end of the year, which will increase the value of bonds bought now.

Reuss said the 2 percent inflation rate is also significant for the stock market. Historically, he said, the price-to-earnings ratio for all stocks averages between 18 and 20 when inflation is at that level.

The average now is 17.

But U.S. corporations are buying back more stock than they are selling, Reuss said. With a shrinking supply of stock to soak up savings, prices will be bid to levels earnings do not justify, he said.

His solution: investing overseas, or in multinational companies that do a lot of business in foreign countries.

“It looks like that’s where the value is,” he said, anticipating growth in some markets of as much as 40 percent.

Reuss suggested emerging markets with abundant resources and large, young populations will do well.

If buying multinationals, he said investors should stick with the companies that have made the U.S. a world leader.

For those who want to keep their money at home, he noted small-cap stocks continue to lag the overall market. Sooner or later that gap will be closed, he said.

, DataTimes