Starmont CEO and Chief Investment Officer Harvey Rowen was recently interviewed by The Wall Street Transcript. In the interview, Mr. Rowen explains the concept of buy-and-manage investing, discusses Starmont’s role as a “wealth doctor” and provides valuable insight into the myriad challenges facing investors today.

In publication for more than 37 years, The Wall Street Transcript is a paid subscription publication and website that publishes bi-weekly industry reports that feature equity analyst, money manager and CEO interviews. Starmont has arranged to post the interview on the Starmont website. Click here to read the full interview.

In a word, none.

Equities are undervalued if you look at their projected price-to-earnings ratios at the end of this year, based upon projected earnings. But the projected earnings may be overstated if the economic recovery slows down or stops altogether. Emerging market equities are the new hobby-horse of the investment community. Our clients’ portfolios hold some, but the attention of the “what’s hot” crowd probably means they will do badly for a while until the investors with ADHD move on to some other “hot” product.

Bonds were the best-performing asset class in the decade just concluded and are the best so far in 2010. But when the Fed starts to raise interest rates (not a 2010 likelihood at this juncture), the value of outstanding bonds will fall. Our two Morningstar award-winning bond managers, Bill Gross at PIMCO Total Return and Dan Fuss and his team at Loomis Sayles, have produced positive returns so far this year while trying to position their funds for interest rate increases down the road.

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Global stock markets were down 6% to 13% in the first half of this year (depending upon which index you look at). Starmont Clients were flat to down 1% – 3% (as always, this is net of fees and costs). This is because Starmont Client portfolios underweight the equities market, and our Clients’ fixed income holdings are up for the year but not as much as the equities are down. (July was a better month, and most major domestic stock indexes are around flat as of July 31.)

Through June 30, the year was a tale of two stock markets. The first part of the year through April 25 was a continuation of the strong 2009 bull market. Indexes were up and it appeared that the recovery was taking hold. But things turned, and from April 26 through June 30, the market (as measured by the S&P 500 Index) dropped over 17%.  May was horrible (the worst May for the Dow Jones Industrial Average since May 1940). June was bad as well but not as bad as May.

The questions now are:

     – Whether the economic recovery will continue in the United States and globally, and if so, at what pace, or will the US and/or the global economy slip into a double-dip recession?

     – Where will growth come from?

     – What asset classes present the best opportunity to add value going forward? (This question will be addressed in Part 2 of the First Half Market Update coming tomorrow.)

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Things are tough and will stay tough for a while.

So says Richard W. Fisher, president and chief executive officer of the Federal Reserve Bank of Dallas, with whom I had breakfast on Thursday, July 22.

Mr. Fisher says that the problem is not a monetary one that can be addressed by the Fed. Rather, he believes that while there is plenty of money in the economy, it is not being deployed because decision makers are uncertain about the future.

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