Michael Sprung Interviewed by Mark Bunting on BNN Market Call

Michael Sprung Interviewed by Mark Bunting on BNN Market Call

On Market Call, Michael Sprung, President of Sprung Investment Management. He is taking your questions on Canadian Large Caps.

Mark Bunting:          Hello, and welcome to Market Call, I am Mark Bunting. Thanks a lot for joining us. Michael Sprung is here. He is gracing us with his presence. He is going to take your questions on the Canadian Large Caps.

Here are the ways to reach us. If you have a question for Michael, there is the email address. You’ve got the toll free number or tweet us @marketcall. Good to see you, Michael!

Michael Sprung:       It’s good to be back. Thank you!

Mark Bunting:          Let’s look broadly and then maybe drill down. What’s your overall overview of how things are coming along globally?

Michael Sprung Mark Bunting BNN Market Call Tonight

Michael Sprung on BNN Market Call – There is good reason to be more optimistic: business conditions in the US are improving.

Michael Sprung:       Well, I think there is a good reason to be somewhat optimistic out there. We are seeing business conditions improving in the United States. Housing is stabilizing there. In Europe we are seeing some stabilization of the situation there. As a matter of fact we had positive growth last quarter for the first time and about six quarters of negative growth.

So that’s very good to see, and also in Asia, I mean, it looks like the decline in Chinese growth maybe stabilizing to some extent and in any event it’s still up around 7%. So that’s all the good news.

I think on the other hand the markets have been somewhat rather jubilant over this good news and they run to the extent where I think from our perspective as value investors it’s getting harder to find things that you really want to just jump in and buy today.

And the undercurrents behind all of this still are that although the recovery seems to be marching forward, it’s doing so at such a tepid pace. So we aren’t seeing the gains in employment that we’d really like to see in a typical recovery.

And I think too on the political side, we just got over that hump in the U.S. again where they kicked it down the road for another three or four months and we are going to be going through the same sort of machinations all over again with respect to the debt ceiling, and those debts continue to build and even closer to home. We look at the debts piling up particularly provincially here in Ontario in particular.

These are longer term concerns and I think that there are going to be some inflationary pressures down the road. I think that the reason we haven’t seen rates go up any faster than they have is because they are very reluctant to stall what momentum there is in the economy right now.

So I think it wouldn’t be surprising to see some sort of correction occur in this environment. The market certainly has seemed to react very pronounced to either good announcements or bad announcements whether they would be economic or political or whatever.

And I think that sort of over-exuberance if you want to call it that, is going to continue for some period of time here.

Mark Bunting:          Now in Toronto I am sure your clients have been benefiting from a lot of the Canadian stock shooting higher the rails, RBC and so on, but as a value investor, and you alluded to this, are you finding it more difficult to try to put some money to work elsewhere because the values have moved up?

Michael Sprung:       That’s correct, and you’ve mentioned rails, I mean rails is something that we are no longer exposed to. I just think that current valuations on rails are a little over extended particularly. When you think that overall, can rails generally do much better than the economy overall. And the answer is no, they probably can’t. Right now they are trading as if they are going to continue to have increases in earnings at the momentum that they’ve had the last year or so well into the future.

I don’t think that you can pay over 20-23 times earnings for a rail and expect a reasonable return over the long term here.

Mark Bunting:          And that’s where your discipline comes in?

Michael Sprung:       Yes.

Mark Bunting:          All right Michael, let’s take a pause here, I will come back with the questions for you on Canadian Large Caps after this.

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