Ken Heebner, co-founder of Capital Growth Management and portfolio manager of CGM Focus Fund, thinks bonds are especially dangerous right now, but he’s bullish on the housing market and on the largest U.S. banks.
He’s scheduled to appear on “Consuelo Mack WealthTrack” on public television tomorrow to discuss his views in these areas, but we got a sneak preview of his interview today. He explained why he made such a huge short bet on Treasury bonds (21% of his portfolio). He believes that when the bubble bursts, investors who are long on bonds are going to be hurt a lot.
“Investors tend to be very comfortable buying something that’s been going up in price, that’s given them a successful experience,” Heebner said. “When the price starts to go down and they start to look at losses, they’re going to exit so I think that bonds are a bad place to be and I think that money’s going to go into stocks.”
Heebner also believes that the housing market will be much stronger than consensus and that home prices are going to go up much faster than expected. He said it’s essential that U.S. residents are ready because the change will be swift.
“I think we have a significant shortage of housing in the U.S. today,” Ken Heebner said. “We had a surplus in ’05. But as housing starts collapsed we brought production of new houses down to a level far below the annual growth in demand for the population. And as a result of that, we have a shortage…”
According to Heebner, the housing industry has cut back severely, not only by eliminating jobs, but also in the way it handles land. He said it takes years to title land and divide it up into lots and begin building houses, so he believes the industry will be constrained and that the housing shortage will get more intense each year.
“The result of this is going to be rising prices,” Heebner said. “In a lot of the country, housing prices are down 25-50 percent. The arithmetic is that if we go back where we were, they have to go up 50 to 100 percent, and that’s going to happen sooner rather than later.”
In addition to the housing industry, Heebner is also bullish on the major U.S. banks. In his view, the biggest U.S. banks are going to be much more profitable than anyone realizes.
“When you look at the P-E ratios of these big banks, they are well below where they have ever been, they are off of the lows, but they are low by historical standards. They are big beneficiaries of the problems in Europe, they compete with the European banks which have serious problems… so there are market share opportunities, and in the banking industry, we now have the five biggest banks, which have about 50 percent of the deposits and that’s consolidation that we have never seen before. So you have a much better profit outlook and low P-E ratios.”
The full interview with Heebner is scheduled to air tomorrow night. Check your local listings. You can also catch it Monday at WealthTrack’s website.