Look to High-Yield Munis, U.S. Large-Caps, and TIPS — Hyman, Doll, and Gross Sound Off

Don’t expect the economic news to get better anytime soon — but there are opportunities to make money in this market. That’s what three top strategists — Ed Hyman of ISI Group, Bob Doll of BlackRock, and Bill Gross of Pimco — told Consuelo Mack in an  exclusive interview on WealthTrack this week.

Hyman, who has been voted Wall Street’s top economist for 29 years in a row, said that the economy will continue to worsen for some time, though he thinks the most severe part of the economic decline has passed. “I think it’s going to go down for at least another six months, maybe nine months, and possibly a year,” he said, noting that he expects unemployment to reach 9 percent. “[But] we’ve been through the steepest part.”

Doll, the global chief investment officer of equities for BlackRock, issued a similar economic warning. The news will be “awful” for at least the next six months, he predicted, saying that earnings and unemployment figures will be part of that awfulness. But, he added, “It’s going to soon be less bad, and I think for financial markets, that means something.”

Gross, meanwhile, said that in many ways the situation is a “transgenerational” one, and goes beyond cycles. “We levered up for 25 to 30 years and now we’re delivering down,” he said, “and that has significant implications in terms of future growth going forward. It means that growth will probably be much slower because there’ll be less leverage. It means that employment gains, when and if they come in 2010, will be much slower as well. So we better get used to a different generation of economics as opposed to the past 20 years.

All three of the strategists see opportunities amid the financial turmoil, however. Hyman likes high-yield municipal bonds, in part because he believes the federal government will be forced to step in and provide help for municipalities, which will insure these high-yield securities. Doll says he’s high on large-cap U.S. stocks, and sees double-digit growth in the stock market for 2009. By the end of the year, he says, investors now seeing a “black hole” in the market will see a bottom.

Gross reiterated Pimco’s philosophy of buying what the federal government is going to buy. He says you can often find hints about what the government is going to do if you pay close attention; for example, he now says the feds are likely to move toward helping with asset-backed securities, student loans, and credit card types of receivables. Down the road, you may be able to add commercial real estate to that list. His top recommendation right now, however, is TIPS — treasury inflation-protected securities. Individual investors can buy TIPS through exchange-traded funds that hold baskets of them.

One final interesting note from Hyman: He says the economy won’t recover until the stock market moves upward. And if that doesn’t happen on its own, he thinks the federal government will step in and start buying stocks to help drive the market up.