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The bear is back
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August 27, 1998: 8:25 p.m. ET
Analysts blame deflation on what they view to be cyclical bear period
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NEW YORK (CNNfn) - In times past, market plunges like Thursday's were seen as buying opportunities. However, two leading Wall Street experts are cautioning investors to view the world differently this time.
Appearing Thursday on "Moneyline News Hour with Lou Dobbs," Mark Holowesko, chief investment officer at Templeton Worldwide, and Robert Farrell, senior investment advisor at Merrill Lynch, said investors shouldn't expect the bull to return anytime soon.
"The markets have been deteriorating since a year ago, when everything was great. At that point, the meltdown on a global basis started. I think this is a cyclical bear market," Farrell said.
"I think this is a fundamental decline. Deflation is really the cause of this. Low interest rates and low inflation isn't the answer to supporting this market."
Holowesko believes the bear may not turn into a bull for some time.
"If this is a typical bear market, it could last some time. Stocks are still 35 percent above their fair value, so it could take some time to work itself back up," he said.
Holowesko said Russia has been especially hard hit. He characterized the events there as going from Communism to chaos.
"They have serious problems. The currency crisis hitting Russia and Europe will have ramifications here as well," he said.
With all the doom and gloom, investors are naturally looking for safe havens as they ride out what many see as an impending storm.
Holowesko said one place investors might look is Hong Kong, where stocks have already been battered and there are some bargains.
"There are problems everywhere, but there are places where prices are discounted. They're already discounted somewhat in Hong Kong, where stocks are down 60 percent. The developed markets are underweight," he said.
For investors trying to time the point when they can safely get back in, Farrell believes November might bring the best opportunities.
"Investors looking for stocks at a bargain in a decline should wait for one of the biggest tech selling periods we've had for years at the end of October, when mutual funds liquidate," he said.
Farrell said until the downturn is over, investors will have to change the way they react to market fluctuations.
"This (market) has been such a great bull for so long, (investors) have learned to buy weakness and things were brief. Now, for a fair amount of time, you will have to be restrained and stay with quality stocks. Basically, I think this is a time to be careful," he said.
Holowesko said global currency problems will also make it harder for U.S. companies to compete.
"There will be pricing pressures at the same time they are dealing with pressures on costs. If you compete with an Asian company, you will find it difficult to raise prices," he said.
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