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[Host: Randy Cass] He's got an investing style that focuses on contrarian thinking and common sense.
Our next guest's Lycos Value Fund has returned more than forty percent to
investors over one year period. That helped it rank in the top five out of roughly
eleven thousand funds. To get his market outlook and some top picks, we're now joined
by Constantine Lycos, president of Lycos Asset Management
and he joins us from Vancouver. Welcome to market sense Constantine. [Guest Constantine Lycos] Thanks you!
[Randy] First of all, congratuations on those returns. That's a stellar
achievement in this type of market conditions.
[Constantine] Thank you. It hasn't been easy!
[Randy] I imagine. Why don't we talk about
your bigger picture macro thoughts
and then from there we'll get in some of the stock specific ones that you have.
[Constantine] OK
My bigger picture outlook
is for
what most people expect
very long protracted periods of low growth
for the developed world.
Two main reasons for that:
one is
the baby boomers entering the retirement years
and they'll be consuming less,producing less and generally helping bring down
the levels of economic activity
and the second reason is the high levels of debt
that the
developed nations have accumulated by running big deficits and they
need higher taxes to pay for the debts
that's partly to pay for
the benefits for retirement and medical care
for the
baby boomers
that are entering their retirement years.
[Randy] Constantine,
there was a recent research report that came out of Morgan Stanley that
mentioned that politics has an influence on the market
which is going to be around for years if not decades because of the situation they
found themselves in the deep deficits and debt holes have to be transferred to
the citizens over a period of time
in a contentious political environment.
How long do you think it's gonna take politicians and politics to resolve the
situation they find themselves in right now?
[Constantine] Unfortunately, a very long time because nobody wants to make the tough decisions.
If you are an elected politician and
you need to make cuts in let's say health care benefits and retirement benefits
and so on
because what you promised
cannot be paid anymore, it's a very unpopular decision and you tend to pass
it on to the next guy and the next guy the next guy and so
I have no idea! Probably a long time!
[Guest host Peter Gibson] Constantine, you know just to give the viewer sort of
a little optimism 'cause I've been on the same path as you for a long time
I've argued that
the burden of debt was driving interest rates down to keep bond markets happy and
that growth would be very week for a long time but you know at the end
of the day you can either bite the bullet and deal with this or face a debt
crisis or alternatively let the productivity growth really drive economy so
you grow your economy at a faster rate
with the same or less inflation and that's the only way ultimately to get out of a
debt crisis and since it speaks to your basic thesis, you know maybe it'd be
wise to give our concerned viewers some optimism in that respect.
[Constantine] The optimism that I have is that
this so called first fiscal cliff crisis is bringing
the debate forward and hopefully that in the US
they'll make some good steps
towards bringing some more revenue because they needed to know
to pay for the debt that's so
if taxes have to go up a little bit that's probably not a bad
thing for them
and if they go up too much, it will be bad for the short term for the markets
but if they could make a good compromise that'll be terrific
and they can be
in a better shape than
they've been in years and have a
good
long-term outlook
particularly with that with something else and nobody else has been talking
about which is very very positive particularly for the North America,
particularly for the US
the price for natural gas. I am not a commodities specialist and
I'm sure on your show there have been
lots and lots of
extremely
smart and talented commodities analysts, but it seems to me that
there's a huge differential between the price
of natural gas that that the Europeans and Japanese have to pay and
what we now have to pay here in North America and that's created a
huge, I think it's a really big competitive advantage that's bringing
industrial consumers of national gas
for whatever industries that natural gas is being used as an input and
I can think of
chemicals, aluminum, steel, those sort of uh... industries.
They will have a big competitive advantage over those of
the Europeans or the Japanese
and the emerging markets have not been all that great at being able to produce cheap energy
and now we have this,
presumably because of the
the shale gas,
this excess supply of natural gas
and it puts
North America and the US in particular in very good position, if they can
resovle some of the problems they have with
the debt by raising taxes and reducing spending, and so on
which which are
solvable problems that nobody wants to deal with them, but they can be solved!
I am not totally pessimistic forever and I think will be able to generate pretty
good returns going forward for a very long time!
[Randy] So Constantine, in this environment of uncertainty and
somewhat
greater risk than normal what are some individual stocks that you would be buying?
[Constantine] I've got
one stock pick for you that is
playing into the theme of low growth for a long time to come
that's a
discount retailer in the US by the name of Ross Stores
[Randy] Ross Stores ticker ROST?
[Constantine] That's correct.
They
sell
primarily brand-name merchandise at whatever the website says,
twenty to six percent less than department stores,
and are basically providing what the consumer wants: a good product at a good price which
this happens to be
my investment philosophy for buying stocks
"good stocks a good price" but people really want that
and they are able to deliver that the consumer and that they will able to
generate a very high ROE as your previous
host, guest rather, was talking about and
they've been doing that very
very consistently over a long time and I think that will continue to do so as long
as there is uncertainty, economic uncertainty,
a high level of unemployment and growth is not particularly high.
In the really good times you want to be
going out and spending on branding and paying full price because you
want the choice more than anything else
not necessarily looking
for the best deal out there. So that's
one that plays into that theme.
Stocks that I...
It's the same type of chain as TJ MAXX or WINNERS here in Canada
very popular with Canadians just like it is in the US,
TJ Maxx
[Peter] Constantine,
sorry, I noticed you've got
a forty two percent higher price target.
I mean this is a structural problem this issue of restructuring economies
and the price sensitivity of consumers and I very much buy into this argument
you're making but forty two percent that's a huge uh... total return gain I presume!
[Constantine] It is!
and it doesn't have to go there in twelve months, it can just continue to
maintain its
profitability and the multiple can stay the same and you'll still get a
nice double-digit return but eventually
uh... the fair value number
will get hit either because the fair value
comes down or because the stock goes up
uh... hopefully the business continues to perform
and uh... it will happen! If this happens
in a year or two or three it doesn't matter. You will get a good return out of this thing
as long as the business continues to work well.
[Randy] Constantine, another one of your picks is Apple that's a popular
one that's been going through some tough times recently.
[Constantine] That's a really popular one that's come down recently.
I have no idea why it's come down but my guess is everybody got pissed off with
the map issues
you can't get "street view"
one the new map application on the iPhone5
that annoys me too!
It was up so much that people wanted to take profits and found excuses
and of course more seriously
the pace of technological innovation from Apple
appears to be slowing maybe that's why the sell-off recently but we will
have to wait and see.
Technology companies you have to watch very carefully because if
they stop innovating of if they slow down the pace of innovation
they
can become obsolescent
very quickly but at these levels it's a good price!
[Randy] All right Constantine, we are going to have to leave it there. good price
Thank you for joining us on Market Sense.
[Constantine] Oh, you're very welcome
[Randy] That was Constantine Lycos, president of Lycos Asset Management joined us
from Vancouver. Up next, Peter and I are going to talk individual stock ideas. Stay with us!