Steve Leuthold: ‘I’m Scared to Death of the Markets’, but He’s Buying

This stuff caught my eye. Star Tribune’s Kara MCGuire quotes the veteran investor Steve Leuthold:

I'm scared to death of the market.

Here’s why Mr. Leuthold is scared.

"I've been scared to death of the market before and it's been the time to buy," he said, pointing out that the hundreds of data points the Leuthold investment team use to make buy-and-sell decisions have turned positive. Their core portfolio is now half invested in stocks -- up from 30 percent earlier this year.

"You do have pretty good valuations here, and we do think the economy is OK. We're not expecting a double dip -- we're probably going to see 2.5 to 3 percent GDP growth next year." He also expects a "Band-Aid" solution in Europe to address the uncertainty coming from Greece, Italy and Spain.

But several alarming issues loom: gridlock in Washington, the U.S. deficit and concerns about the long-term value of the U.S. dollar, to name three on the top of Leuthold's mind.

He said the last time individuals faced an economic crisis of this magnitude was in the 1970s. But investors who lost faith in the market back then could invest in Treasury bills and earn 15 percent in interest.

"Now there is nowhere to go with safety where you can get a decent return on your money," said Leuthold, who thinks the policy of keeping interest rates low is really hurting average investors, who are in over their heads to begin with.

Not far from how I see current developments.

Yet he shares some tips: (bold original)

"Opinions are for show; numbers are for dough." In other words, don't make investment decisions based on emotions, news reports or cocktail talk. Do your research. If you have a tendency to make emotional decisions, consider an asset allocation fund made up of a mix of stocks and bonds with a manager paid to worry for you.

Be conservative. Save more, spend less because the idea that the future will always be better, well, "That's not necessarily true."

Don't follow the herd. Although being in the middle of the herd is the most comfortable place to be, consider getting out of your comfort zone. "When you see everybody go one way, look at why they may be wrong."

Go global. Investors should work toward having 50 percent of their portfolio based outside the United States, particularly in Asia. "The U.S. was the economic king of the world after World War II," Leuthold explained. "We had this huge wave behind the U.S. that gave us superior growth for 30 years. Then all of a sudden [other countries] started catching up. ... We go along like we're still the kings and can afford deficits as far as the eye can see and something is going to happen magically to support all these retired people with Social Security and Medicare. And it's a pipe dream."

Remember that investing isn't about the warm fuzzies. It can be downright unnerving. One short-term, tactical play is to consider investing in European stocks with global earnings. He mentioned Nestlé, Siemens and Unilever.

In short, use your common sense and don’t follow your confidence fairy or ‘animal spirits’.