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Bill Miller says the credit crisis is over

by Danielle Levy on Apr 02, 2008 at 15:03

Bill Miller says the credit crisis is over

Bill Miller of Legg Mason Investment Management believes the Bear Stearns bailout two weeks ago marks the end of the credit crisis.

The manager of the Legg Mason Value Trust, Legg Mason Value A Dis A USD  and Louvre Gestion's America Value funds says that on hearing this news he ‘put fresh money into the pot’, namely his own funds, which he admits is something he rarely does. He says that the Fed’s opening up of the discount facility to investment banks has allowed spreads to come in, leading to a rebound in financials.

Miller and co manager Mary Chris Gay are currently overweight financial services, technology and consumer discretionaries. Within the financials sector Miller singles out housebuilding stocks as an area he is investing in. He says that although the area attracts negative press, he believes the stocks are starting to outperform and points to the recent healthy performance of the index.

He has also increased his fund’s exposure towards financials with less risky balance sheets and a lack of exposure to structured products, and highlights the US Bank Corporation and Capital One as stocks to watch.

Moreover, he says investment banks such as Merrill Lynch and Lehman Brothers, may be ‘the next place to move’.

However, Miller is also predicting further consolidation within the financial system and says we could see potential changes to capital requirements within investment banks. He says that we may well see companies like Merrill Lynch and Lehman Brothers partnering with other banks, like HSBC and Wachovia, before the next credit cycle is over.

He says the current system is suffering from over capacity and as a result of this, he predicts the incentive structure of investment and commercial banks are likely to see changes.

Miller, who is also chairman and CIO at Legg Mason Capital Management, remains positive on the healthcare sector and mentions managed care, in particular, as an area where he is expecting to see positive growth.

Although he admits this has been the worst quarter he has ever experienced in terms of the performance of his Value Trust relative to the market, he is predicting an upturn in performance. He points to two other quarters in 1987 and 1990 in which his fund underperformed and says it is no coincidence that in 1988 his fund achieved an impressive turnaround.

He points in particular to the rebound in US equities, which saw the S&P 500 close 3.6 per cent higher yesterday, and in turn the increase in his fund's valuations. ‘If you have a good market, which I believe will happen, it is possible to achieve significant outperformance,’ he says.

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