Stock, bond slumps echo 1974 bear run

Michael Patterson NEW YORK

IT'S been 14 years since investors suffered as big a retreat in stocks and bonds and some of the largest money managers say the losses may have more in common with the 1974 bear market before the worst is over. The Standard & Poor's 500 Index dropped 3.4% since March and investors in Treasuries lost 2.88%, the steepest combined plunge in 14 years, according to data compiled by Merrill Lynch and Bloomberg. Equity and debt markets fell in tandem for only the sixth time since the savings and loan crisis of the 1990s as oil closed at a record 19 times and concern grew that inflation will cut the value of bond payments.
    Dreman Value Management, BlackRock and Cambiar Investors, which together oversee $1.38 trillion, are buying banks, phone companies and oil producers to weather more declines in benchmark indexes. David Dreman, whose DWS Dreman Small Cap Value Fund beat 90% of its peers over five years, bought Cleveland-based KeyCorp as financial firms fell to a 10-year low last week. BlackRock added AT&T for the best dividend yield since 2006. Cambiar says Marathon Oil is inexpensive.
    "Between inflation and the liquidity crisis, this is one of the toughest markets I've seen," said Dreman, who oversees about $15 billion in Jersey City, New Jersey. "But it's not a market you sell into. Any losses you take by being too early will be more than offset by buying cheaply."
    Dreman founded his firm in 1977, three years after the S&P 500 fell 30% for its worst annual loss in the last 60 years. Stocks plunged as the Arab oil embargo pushed up US consumer prices as much as 12.3%, at the time the biggest annual advance since 1947. Consumer prices climbed 4.2% in the 12 months to May. The Reuters/Jefferies CRB Index, a gauge of 19 commodities, added 49% in the past year, exceeding the record 48% annual gain in 1973.
    Investors were whipsawed this month by the Dow Jones Industrial Average's worst June since 1930 and the biggest losses in Treasuries in four years. Bets that the Federal Reserve will increase interest rates helped spur a 1,292-point tumble in the Dow average this month on concern higher borrowing costs will prolong the worst profit slump in six years.
    The Dow industrials added 37.86, or 0.3%, to 11,384.37 as of 9:45 am in New York. The S&P 500 increased 5.23, or 0.4%, to 1283.61. Just two of 10 industries in the S&P 500 rose this year. Energy producers gained 6.3% and a group of mining and chemical companies added 0.5%. Massey Energy, the fourth-biggest US coal producer, advanced 155% for the index's biggest rally after the Richmond, Virginia-based company's first-quarter profit topped analysts' forecasts. — Bloomberg