Bill Miller - The Fed "Should Buy Stocks"

Somebody finally said the obvious. That “somebody” was Bill Miller, manager of the Legg Mason Value Trust mutual fund (symbol LMVTX).

What he said was that the Fed “should buy stocks and junk bonds to avert a deeper financial crisis.”

I have been very clear that I will start buying stocks again when somebody other than the Fed decides to buy something and hold it for more than an hour. Now, Bill Miller is telling the World that the deep pockets of the Fed are needed to get the markets moving higher again. Because the simple fact is that there are no buyers of stocks right now, just traders and those looking to liquidate.

You know by now that my contention is that the Fed has been buying stock futures to prop up prices intra-day. It is also my contention that the reason we are having this massive volatility is because stock prices are being propped artificially high, at a level where no real buying will take place. I think the Fed is waiting (hoping) for fundamentals in the economy to improve enough, so that these current prices become fair values for stocks and real investors will eventually show up to buy stocks at these prices. If you have a better theory, I’d love to hear it.

First, a Little about Bill Miller
Mr. Miller is a classic “value investor”. He tries to buy stocks that are inefficiently pricing fundamentals. Think Warren Buffett.

Year to Date, the Legg Mason Value Trust fund is down -59.7%. He has spent 2008 telling investors that banks stocks were “cheap” and, unfortunately, put his (fund shareholders’, actually) money where his mouth is, buying huge holdings in the likes of Fannie Mae, Freddie Mac, Countrywide and Yahoo.

http://www.mutual-funds.us/2008/03/05/news/newsmakers/lashinsky_miller.fortune/index.htm?postversion=2008030605

This is an individual who was paraded in the Financial Media the last few years as one of Wall Street’s top mutual fund managers. He had a tremendous long-term track record, but is showing that he has no clue how to protect capital.

Kiplinger – “Buy Bill Miller Now” 12/18/2007
“Legg Mason Value has been a stinker the past two years. But Bill Miller is a gifted manager. Bet on him to rebound.” -

http://www.kiplinger.com/columns/value/archive/2007/va1218.htm

Take a look at Bill Miller’s Fund. Do you think the accounts I manage look like this?
Value was the hot dot from 2002-2006, just as Growth was the hot dot from 1994-2000.
You need to know when to zig and when to zag. If you can’t, or don’t have time to figure it out, then pay somebody to help you.


Now, today in fact, Bill Miller said –

It "looks as if the bottom has been made" in U.S. stocks
the "bottom has been made" in U.S. equities

"I think we will do better from here on, and that by far the worst is behind us." (Wait, sorry. That quote was from this past April)

So which is it – is “The Bottom” in and investors can now buy with impunity, or does the Fed now have to start buying stocks to help hedge funds further delever to meet a new flood of redemptions?

I really want stocks to stop going down. I really just want to get fully invested for 18 – 24 months and hang out with clients and my family again. I am sick of the 18 hour days and working late on weekends. I am also anxious to travel and visit clients again.

But I have a responsibility to protect those who have entrusted their funds under my management and I have to stay where I can push the bottoms if I need to do something.

I’ll let you know when it seems safe enough to try something other than a trade.