In the spring of 2009, when many traders and investors were terrified, investment manager Jeff Matthews made a bold and bullish call here.
Two years later, Matthews is much less optimistic about both the economy and the market.
"It's a greater period of risk vs. reward because we've got rising costs: This thing called inflation," Matthews tells Henry in the accompanying clip. "Every company is talking about risings costs, not just with oil."
With earnings season in full swing, Matthews cites a number of companies which have cited rising input cost as hurting profit margins -- or threatening to in the coming months.
Ford, for example, posted blockbuster quarterly results Tuesday morning but also forecast $4 billion in higher expenses in the coming year. That's why the stock barely budged yesterday despite "everyone being all excited" about the company's stellar first-quarter results, Matthews says.
"You're going to see [that] across broad range of companies," he says, citing Procter & Gamble and Kimberly-Clark as other recent examples.
Meanwhile, the consumer is being slammed by rising gasoline prices, which are up 37% year to date and $1.00 per gallon in the past 12 months. Every 80-cent increase in prices at the pump costs U.S. consumers $100 billion, which helps explain why consumer confidence and Obama's poll numbers are falling despite the stock market heading into Wednesday's session at a new cycle high, Matthews says.
Although many investors "have to show they're invested" and it's human nature to "chase higher prices," Matthews says the broad-based rally is in its final throes.
"We're at the point you've got to be stock selective," he says. "We're into more of an inflationary, not all boats rising, late-cycle type market [and] face rising rates when Fed finally comes off the QE2 gas pedal."
Of course, the market today will be fixated on the FOMC statement and Ben Bernanke's first-ever press conference for any clues when the Fed's proverbial foot will start to lift. See Dan Gross' preview here and stay tuned for additional coverage later today.
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