Strategist Dont Let Recession Fear Rule

February 8, 2008
| By Pete Daly |
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GRAND RAPIDS — When Scott Thoma talks to an audience — which he does very frequently these days — he often holds a recent issue of Newsweek magazine that undoubtedly scares the bejabbers out of many investors.

"Road to Recession" is the stark headline on the cover.

Whether or not the United States is in a recession "is the wrong question to be asking," said Thoma, a national senior analyst for Edward Jones. The right question, he said, is: Has anything changed in your own personal situation?

"Unless something has changed in the individual situation, there is no reason to make changes to your portfolio," said Thoma, who was in West Michigan last week to talk to groups of Edward Jones employees, clients and potential clients.

Thoma, who is based in the Edward Jones headquarters in St. Louis, is the wunderkind of investment market strategies. He has been a guest on CNBC "Squawk on the Street" and the PBS "Nightly Business Report," and he has been quoted in The Wall Street Journal, Bloomberg, the Boston Globe and the Minneapolis Star-Tribune.

He graduated summa cum laude from Southern Illinois University at Edwardsville in 1998, earning a bachelor's degree in business administration with an emphasis on finance and economics. Then he earned a master's degree in economics and finance from Southern Illinois University in 2000, and also served as an instructor there in corporate finance and banking/risk management. He earned his Chartered Financial Analyst designation in 2003 and is a member of the CFA Institute.

He began his career with Edward Jones, one of the largest securities firms in the U.S., in 2000. Today he studies issues that retirees face, such as longevity, inflation and withdrawal rate risks. He also serves as primary backup for the company's chief market strategists, domestically and internationally. He previously served as senior analyst on the Edward Jones health care investments team, analyzing medical device firms for more than five years.

"I think the economy has weakened," said Thoma in an interview with the Business Journal, "but I think a lot of positives are going on that aren't really talked about a lot."

One example of a positive, he said, is the Federal Reserve cuts in interest rates: twice in January and predicted by some analysts to happen again soon, possibly taking rates as low as 2 percent. Thoma said that won't cure the problems in the housing industry right now but it does "give confidence to business and individuals that the Fed is doing what it can."

By the way, he said, housing is only 6 percent of the national economy and it is expected to get better in about one year. He said it takes longer for the housing market to change because it is not volatile like stocks: Home values don't change radically overnight.

Another positive right now is that it is an election year, which means there are many interested parties that don't want to see a recession, he said.

Other than the financial industry, the "balance sheets of corporate America look pretty good," he said.

The U.S. economy is $14 trillion, according to Thoma, and it involves "a lot of moving pieces," so it's virtually impossible to tell exactly what is happening overall at any given moment.

Thoma said research indicates that the average recession lasts 10 months — but that it takes six to eight months to determine that it is (or was), in fact, a recession.

"By the time you know you're in one, it's basically over," he said.

"Don't try to time the market," he said.

His experience studying health care industry investments has made Thoma well aware of the strengths of the West Michigan economy. He said health care in the United States is a $2 trillion industry and that is expected to double over the next decade — "well above normal economic growth."

Right now, Edward Jones rates Medtronic a "buy," said Thoma. "I think it is a company that is undervalued," he said.

Stryker had also been a "buy" but was recently downgraded to a "hold." He said that was more of an adjustment in their view of Stryker, as opposed to a reaction to any problems the company may have. He added that Stryker is still a "fantastic" firm. Both companies are well diversified within the medical devices industry, which gives them strength, he said.

As to the stock market in general, Thoma points to a possible clue that now is a good time to buy. He cited three recent events in U.S. history when more stock was being sold than bought, based on a study of net sales among U.S. mutual funds. The first time was the market crash of 1987, then in late 2002/early 2003, and now.

After the 1987 crash came "one of the best bull markets in history," he said, and after the 2002-2003 sell-off, markets doubled in value.

So now there is apparently a sell-off.

"We would argue that's a very positive sign for the market," said Thoma.

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