Legendary Fund Manager Bill Miller of Legg Mason Capital Management, says bull markets rest on economic growth, adequate liquidity, and valuation. Miller also believes we are at the beginning of a long housing bubble.


not at all. it’s a market that i think is roughly fairly valued in the sense that it’s around 15 times earnings. which is about the average in the post war period. the market rarely spends time at kind of the average. the average multiple is part of a journey. it usually starts at a low multiple, ’09, and goes to a high multiple like we saw in 1999 or 2000. the odds are that the multiple actually rises over the next several years. the market will be more dangerous at that level than it is right now. bull markets rest on three things. economic growth. we have that. two is adequate liquidity. the fed told us yesterday they’re going to keep rates pinned close to zero for the next couple of years. and then three is valuation. valuation is certainly not demanding on an absolute basis. and it’s extremely attractive compared to bonds. in what sectors, what companies do you think are extremely good places to be for cycle as it plays out? it’s interesting. one of the groups that’s done the worst this year are the home builders. they did terrifically well in 2012. gone to sleep this year. most of them are down this year because the 30-year mortgage is 100 basis points higher than a year ago. there’s no question we’re at the beginning of a long home building cycle. lennar put up stellar numbers yesterday. valuations are reasonable. if you realize the market is at an all time high, many stocks at an all time high, pulte homes a t a peak last time was $50. it’s now $18. i think both those stocks will get there. pulte homes, if it takes it two years to get to where it was in the spring you’ll make 50%. it’s incredible to think about these names getting back to where they were during the not just boom but bubble. you’re not worried that’s asking too much to assume that they get back to those levels? those levels were a function — the housing market was clearly in a bubble then. but what — what put those companies up, those home builders up were new homes. housing starts. if you look at how far down the housing cycle went, we went down the lowest level of starts in 50 years. so right now we’re going to have about 900,000 housing starts this year if we’re lucky. and the normal would be about 1.4 million. that’s from the cycle from 2010