Jean-Marie Eveillard Very Bearish

I have only been following Jean-Marie Eveillard for a few years but, boy, does he seem bearish. Nothing really new in this article but let me pick off some of his thoughts.

Fed policies under Greenspan, Eveillard says, precipitated "one bubble after another" -- from the implosion of technology stocks in the late 1990s to the recent real-estate price collapse and the related financial-services industry meltdown.

"In the last two or three years, the financial acrobatics were extraordinary," Eveillard said. "You could get a mortgage without having to document your income, your assets, or whether you had a job.

Why do gold bulls always take a dim view of the Federal Reserve (not that Jean-Marie is necessarily one)? Or is that a pre-condition for being accepted into the fraternity of the brotherhood of the elite exclusive group for the shiny yellow element of Aurum? ;)

I personally am not as critical of central banks as many others. I think Alan Greenspan is overrated (what people took for wisdom from him is really obsfucation) but like Ben Bernake so far. It's extremely difficult to run a central bank and always easy to say things in hindsight. Although Alan Greenspan may be responsible to a minor degree for some things, I feel that the individual is ultimately responsible for their actions. In the case of the housing bubble, was it not the homebuyers and the lenders/investors who were fully responsible? I find it puzzling that some who claim to be libertarian (or libertarian-leaning) end up blaming the central bank for most of the problems instead of blaming the individual. (anyway, what I say here has nothing to do with Jean-Marie Eveillard.)

"Banks and brokerages are disguised hedge funds," the fund manager said, disparagingly. "There is no transparency; nobody knows what's there. Some of them may already be quite bargains. The problem I have is that if I bought them, I would be buying blind."

That said, he hasn't completely ignored financial services. "The financial sector is more than just banks and brokerage firms," Eveillard pointed out. "So we bought some American Express."

I have commented on Eveillard and American Express (AXP) before. American Express is getting whacked because it has credit risk. It actually issues cards, whereas Visa and Mastercard are simply credit card processors.

Still, North American firms in general don't really attract Eveillard, who is a native of France and is based in New York. Nowadays he's more interested in putting money into Japanese stocks, which make up 30% of his fund, and Western Europe, where another 30% of assets are committed.

He's also looking closely at the emerging markets of Asia. "The future lies in Asia," he said. "We have to adjust to the fact that that's where the action is going to be."

Asia is going to go through a whole bunch of crises so investors will likely have plenty of time to invest there.

A cash-rich balance sheet and an underappreciated business is, for him, a winning combination.

"Many analysts and portfolio managers seem to ignore the cash on the balance sheet" in valuing a company, Eveillard said.

Japanese small-cap companies in particular, he explained, have a tremendous amount of excess cash on hand. Said Eveillard: "Cash and securities, net of liabilities, are in excess of market capitalization," which he added is like getting the business for free.

Half of Japanese stocks (last time I checked a few months ago) is trading below book value! And quite a few are trading below cash (as Jean-Marie here alludes to). Unfortunately for small investors, many of these are small-caps and English information is hard to find. If any reader is following Benjamin Graham's strategies, Japan is pretty much where you should be focusing your efforts.

Another opportunity lies with Japanese industrial companies, Eveillard said. As examples, he points to SMC Corp. (JP:6273: news, chart, profile) , which makes pneumatic machinery, robot manufacturer Fanuc Ltd. (JP:6954: news, chart, profile) , and Keyence Corp. (JP:6861: news, chart, profile) , a maker of automated products.
"All of them are multinational, have very large global market share, and are extremely profitable," he noted. Yet their share prices, he said, are "extremely modest."

No new information here. I have touched on these before. Fanuc made me look into Yaskawa, an industrial robots concern. I have narrowed down my decision to Toyota Industries, a Martin Whitman pick, but haven't invested yet.