Rebound Or Relapse?


two or three years. The industrials are just straightforward valuation. You’re talking about very low P/E (price-to-earnings) ratios.

GREEN: We’re looking for, we like, the sectors that are going to benefit from improvement in the economy. We are tending to start to take our profits from the more defensive sectors. We like, in particular, the health care sector where we think the pace of innovation is heating up and the pace of demand is clearly going up. Within that [industry], we like pharmaceuticals and biotech. In spite of the large run up it has had, we continue to like the technology sector. We think that is one of the key growth engines of the U.S. economy. We think the capital spending cycle is approaching a turning point that will restore true fundamental health to the sector. Finally, the consumer discretionary sector has a broad array of stuff, from big-ticket items like autos to media [and] telecommunications. We think that media, telecommunications, and some of the specialty retailing are going to do well in a recovery and represent an attractive investing opportunity.

B.E.: What about the changing tax laws? Is there anything positive that investors can look for?
ELEY: A part of the tax changes was an increase in the amount of funds that could be [placed] into tax-deferred or pension-type plans like 401(k)s. I’m a real believer in putting the maximum [contribution] into those accounts.

PUGH: I want to piggyback on that. If you didn’t do anything else, if the company has a match, an individual can double their investment. Whether your investment strategy is to be 100% in bonds, 100% stocks or whatever the split, you automatically double your savings. What better opportunity is there out there? That is something everybody should do if they are not already doing it.

B.E.: How has the housing boom affected the market and do you think that it’s a bubble that is going to burst soon?

ELEY: The fact is the housing boom has to come to an end. Whether or not it will burst or whether the air will be let out slowly, one way or another it’s going to happen. Now, it doesn’t mean that housing prices have to fall, but housing prices can stall for quite a few years. That is something that has happened before.

STEWART: I don’t think that it’s clear whether or not we are going to see a bubble. I think that we cannot or should not expect to see a continued upward valuation in housing prices from current levels. Whether or not they are going to fall precipitously, I can’t really say. But definitely, I do not think that they are going to go much higher over the next six or seven years.

GREEN: Given how much housing prices have gone up, it’s really imprudent now to look at your housing as an investment or to treat it as an investing activity. It’s [now] a financial activity. You should really make your decisions and frame your thinking about housing around how


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