Take Five: Cetera’s Brian Gendreau

Gold still looks good and stocks still have room to run, according to Brian Gendreau, a market strategist at Cetera Financial Group Inc. and professor of finance at the University of Florida.

InvestmentNews: Is the recent volatility of gold prices a sign that the precious metal is poised for a fall?
Mr. Gendreau: Gold is always thought of in two elements: there is the supply-and-demand side, and the speculative side.
The structural case for gold is still intact because supply is not getting easier and the underlying demand remains strong.
That all argues for a trend toward higher prices, but the trouble is the speculative factor. Because of all the quantitative easing, low interest rates and concerns about inflation, we’re still slightly above the trend, pricewise, but I still like gold in the medium- to long term.

InvestmentNews: Are stocks overvalued?
Mr. Gendreau: In valuation terms, it’s very hard to argue that they are overvalued. The forward price-to-earnings ratio of the S&P 500 is at 14, which compares to 15.1 in October 2007 and 30 during the Internet bubble.
Stock prices have been going up, but they are just playing catch-up with earnings. I’m still a big believer that it’s earnings that drive stock prices.

InvestmentNews: How important is housing to the economic recovery?
Mr. Gendreau: I think it’s a lot more important that most of us economists realized back in 2008.
What really knocked the daylights out of the economy in 2008 was that housing is really interconnected throughout the economy. There are a lot of ripple effects. And it’s linked to the rest of economy through instruments such as derivatives and mortgage-backed securities.
The mistakes that most economists made in 2008 is that they were looking at a housing downturn the same way we had been looking at housing during the entire postwar period.
We didn’t realize the extent to which the housing market had spread throughout the overall economy.

InvestmentNews:Will the recent scandal revealing that the Internal Revenue Service targeted conservative groups have any impact on the implementation of the health care reform law, which will involve the IRS?
Mr. Gendreau: I don’t think it will have a big impact. Politically, it will hurt [President Barack] Obama, because it’s a big embarrassment.
Whether it’s the IRS today or [President Richard] Nixon’s enemy’s list in the 1970s, that’s not something we want to see in a democracy.
And it’s clear that Obamacare does face implementation problems, but the IRS is here to stay.

InvestmentNews:In the near term, what are the biggest risks that the U.S. economy faces?
Mr. Gendreau: I think it is still macroeconomic. Europe is in recession. In the emerging markets, Brazil, Russia and China all are having trouble with growth.
There is also the combination of fiscal tightening in the U.S. and austerity in Europe, and I don’t think the full effects of higher payroll taxes have been fully felt yet.