Everything’s coming up camellias in money manager’s Y2K gardens

“This will come about when people become aware that there is no inflation and the economy is decelerating,” he said at a press briefing in New York hosted by the $8 billion-asset Enterprise Group of Funds, an Atlanta-based unit of New York insurer Mony Group Inc.

Because economic indicators are slowing, he doesn’t believe the Federal Open Market Committee will raise rates at its meeting tomorrow.

Mr. Alger is even more bullish about the next five years. He expects the market to double because inflation will evaporate, thanks to price competition along with productivity gains driven by Internet commerce.

“The Internet will reduce prices across the board for just about everything, not only because it can sell products cheaper but because it provides a medium for everybody to compare prices around the world,” Mr. Alger said.

He expects Internet commerce to explode in the next five years as more buyers shop online and the technology improves.

“Every study shows that people don’t really use the web to buy stuff for three years after they get on it,” he says.

Calling Amazon.com Inc. “a good proxy for the Internet,” Mr. Alger said the online retailer “shocked the world” last Christmas when it racked up sales of $250 million. This year, he expects the company to generate holiday sales of $750 million, even more than many analysts forecast.

A good word for small-caps

William D. Witter, who runs his own money management firm in New York, likes the prospects for small company stocks, which he said have underperformed Standard & Poor’s 500 stock index since 1994.

He said small-caps will get a boost soon, because lawmakers are likely to bow to pressure to lower the capital gains tax from the growing number of U.S. households that own stocks or mutual funds. Small-cap stocks, which tend to grow faster than larger companies, he said, thus generate more capital gains.

The ranks of U.S. households that own stocks or mutual funds — now totalling 48.2% — is growing by 4% annually, according to Mr. Witter.

“Once (stock-owning households) are in the majority, that’s what you are going to get,” says Mr. Witter of lower capital gains taxes.

Speaking of the downtrodden, value manager Mario J. Gabelli, chief of his own firm in Rye, N.Y., sought to explain the current dominance of growth investing: The stubborn optimism of investors about prospects for continued earnings growth. “When you have no conviction that we can project the future, what’s in hand is worth a lot more.”

Meanwhile, at the Society of American Business Editors and Writers conference in Las Vegas, William Gross, who oversees the country’s biggest bond mutual fund, made a case for bonds.

Despite the worst bond market in five years, and his view that a slight interest rate hike is likely, the manager of the $29 billion-asset Pimco Total Return fund said low inflation will help bonds as well as stocks.

Mr. Gross, whose Newport Beach, Calif., fund has beaten the bond market for 17 of the last 20 years, complained “Bonds have been dominated by stocks, because (Fed Chairman) Alan Greenspan is increasingly becoming focused on the stock market in his comments.”

Unlike other bond managers, Mr. Gross was as upbeat about both the stock and bond markets as his peers in New York.

Perhaps, having sold 80% of the company to German insurer Allianz AG last month, he can afford to be self-assured.

Mr. Gross, who spent the three months between graduation from Duke University and enlisting in the Navy on the floor of Las Vegas casinos supporting himself with blackjack winnings, takes a three- to five-year investment horizon.

“A long-term outlook is the way to beat the market,” he said.

He painted a rosy picture of the economy: Globalization continues to provide cheap labor and keeps inflation low; rapidly aging baby boomers around the world are holding spending down and high productivity gives way to increasing technological advances.

In the next year, the yield on the 30-year Treasury bond will trade within a range of just above 4% to just above 6%, he said. Last fall, the bellwether fell to a yield of 4.75% and got as high as 6.4% in this year’s bond sell-off. Those yields translate into an inflation rate of 1% to 3%.

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