Registered Rep.: You predict that the Dow will hit 16,000 by the end of 2007. That's a 33 percent increase. Why?
Curtis Teberg: Since 1986, the Dow has produced positive fourth-quarter returns in 19 out of 20 years. In six midterm election cycles since 1982, the low point of the Dow to the high point the next year registered an average gain of more than 53 percent. I checked the same 15-month period back to 1926, and I only found one period — in 1930 and 1931 — with a negative 15-month performance.
RR: Why do markets rally after midterm elections?
CT: They are periods when Americans clamor for change. We think if things are good, they'll get even better; and, if things are bad, they'll improve. The changing of the office and the campaign rhetoric gets people excited about the markets.
RR: Your hyper-bullish outlook is contrarian. Is going against the grain a prerequisite for success?
CT: I think that's true in the long run. In the short run, with my large cash position this quarter, it didn't play out so well. The good part of it is that when we liquidated our equity positions last May, we were close to the then-year high on the Dow. So I haven't gotten hurt as bad as you'd think. If we can get a 400- to 1,000-point pullback before it takes off again, I'll be in excellent shape. If not, I'm in a bad spot, and being a contrarian this time hurt me.
RR: When — and where — will you be putting that large 54 percent cash position to work?
CT: We're a conservative-allocations fund, so we're always going to have 40 to 50 percent in bonds or cash. But I'd like to have 60 percent in equities. I'd like to see some kind of a pullback, and then I will put the portfolio back together. It will probably be pretty stable once I get it in there, and remain stable until December 2007. Financial and health care sectors do well during this cycle. The semiconductors and high-tech communications also do well. I'll be going into those sectors.