While many are worrying about a bear market, contrarian guru David Dreman thinks the bull has a long ways to run — though not without some bumps along the way.
“This bull market has years ahead of it, despite some significant corrections and panics along the way. In a best-case scenario we might see the major averages double over the next six or seven years,” Dreman writes in Forbes. “Why? Because U.S. economic growth is finally accelerating. Industrial production, for example, is showing a better picture quarter by quarter, and employment is increasing.”
Even more importantly, Dreman says, “banks are flush again and have funds to lend. Although the Fed poured trillions of dollars into the banking system, much of it is being hoarded as excess reserves. Given the zeal of the Treasury’s bank examiners and the costs of covering subprime losses and litigation from foreclosures, that’s understandable. But all of this is largely behind the banks now, and it’s time to put the reserves to productive use in the economy.”
Dreman also says that valuations are reasonable on the whole. While “microbubbles” exist in areas like social media and biotech, he says “this is a very different market from the Tech Bubble of 1997-2000, which rocketed the pricing of major indexes into outer space.”
Dreman says that rather than focusing on a small number of stocks, investors should play different areas of the market through index funds. Among those he recommends is an oil & gas exploration & production exchange-traded fund.