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We recently spent an afternoon with astrologer Susan Miller, the founder of AstrologyZone.com, at “Under the Stars with Susan Miller and Todd English,” a lecture and dinner series pairing Miller’s zodiac predictions with English’s culinary interpretations of the signs. We asked her what we can expect in 2012 — but first: a message to anyone who thinks astrology is a bunch of hocus-pocus.

“Astrology is a study of mathematical cycles,” Miller says. “There’s no predestination. You can see if the planets are harmonious or fighting each other.”

On the economy and politics:
“[Economic trouble] isn’t really gonna loosen up until Oct 4, when Saturn leaves Libra. We’re gonna see the real estate market get better in the fourth quarter. I think Obama’s gonna do better.”

On Occupy Wall Street:
“It’s gonna grow big. It’s gonna go all the way to March 2015. It’s gonna get more developed. It could even turn into a third party.”

On pop culture:
Kim Kardashian: “[She] did not get married at the right time. It was actually the worst time. She’s a late Libra, and it shows sadness. She’s feeling loss.”

Jessica Simpson: “She’s a Cancer. Actually, her best year of her life is the summer of 2013 to the summer of 2014. I think she may have two [babies] in a row.”

Demi and Ashton: “I never understood what kept them together. She is Scorpio, he is Aquarius — that means she is touchy-feely, warm and very loving. Ashton is very intellectual, cool and distant — brainy. This match was always a mystery to me. She can find someone better for her.”

JLo & Marc: "[JLo, as a Leo, is] very warm-hearted. They need to be free. He’s Virgo, nice and structured — ‘Where you are going, when are you coming back?’ She wanted to be untethered. They just didn’t belong together. Children sometimes add that extra layer of stress.”

Expert tip

Get your most accurate reading
“Most people know their birthday, but it’s so critical to know your rising sign. The rising sign goes by the exact time of birth. Once you know it, for the rest of your life you need to read for that sign too — you’re gonna get 80 percent of your outlook for the month.”

Q&A

What the heck does it mean when Mercury is in retrograde?

“A retrograde planet is a weak one. You need all the planets to be as strong as possible.”

Mercury retrograde periods:
Mar. 12-Apr. 4
Jul. 14-Aug. 8
Nov. 6-25

Who will have the best year?

For career: Leo (first half of 2012) and Virgo (second half, after June 12)

For love: Capricorn and Aquarius

For luck: Taurus and Gemini

For finance: Aries (first half) and Taurus (second half)

For health and fitness: Sagittarius (first half) and Capricorn (second half)

MEREDITH ENGEL/METRO

Jan. 10 (Bloomberg) -- Steve Leuthold, chief executive officer and founder of Leuthold Global Fund, said he is bullish on U.S. stocks in the near future, and sees emerging and Asian countries as “attractive” places to invest.

The investor said an improvement in momentum made him more optimistic, and that he favors health-care and biotechnology stocks. He said equities comprise 58 percent of his asset- allocation fund holdings, and he may cut that level to 30 percent if he sees signs of market deterioration.

“On a shorter-term basis, we’ve become a little more positive” on American equities, Leuthold said today in an interview with Betty Liu on “In the Loop” on Bloomberg Television. Still, he said, “valuations are about neutral.”

The Standard & Poor’s 500 Index has closed above its average level over the past 200 days every session this year. It’s trading at 13.6 times the past 12 months’ earnings, a 17 percent rise from its level at the gauge’s October lows, while still below the 16.4 average since 1954, Bloomberg data show. The benchmark measure for U.S. stocks advanced 0.9 percent today to 1,292.08 today, the highest level since July 29.

Global stocks rallied today as China’s import growth fell to a two-year low in December, bolstering forecasts for monetary easing. The MSCI Emerging Markets Index is valued at 10.9 times the past year’s earnings, about 17 percent below the level for the MSCI World Index of developed-market shares.

“The emerging countries and most of Asia is a very attractive place to be,” Leuthold said.

The Leuthold Global Fund beat 33 percent of its rivals last year, according to data compiled by Bloomberg.

Leuthold, who bet on stocks before the S&P 500 reached a 12-year low in March 2009, said in August that political uncertainty had pushed U.S. stocks into a bear market and estimated that the gauge may fall to 950 to 1,000. The measure fell as low as 1,074.77 intraday on Oct. 4 before recovering to end the year at 1,257.60.

By Ksenia Galouchko and Betty Liu

"I'm scared to death of the market."

That's not what you'd expect to hear from a guy who has made a living researching and investing in the market since the 1960s. But that's exactly the kind of candor I've come to expect from Steve Leuthold, Minnesota's resident stock market historian and contrarian investor.

I recently sat down with Leuthold in his corner office overlooking the Minneapolis riverfront at the firm that bears his name - Leuthold Weeden Capital Management. Leuthold, 74, recently scaled back his duties, stepping down as chief investment officer, although he'll continue to write and manage some portfolios, including money for his family foundation.

We talked about how he got into the business, how he avoided the tech bubble in 2000 but lost half his individual clients in the process, and how 2011 wasn't a good year to be a potato farmer - one of Leuthold's longstanding hobbies. But I sought out Leuthold to ask him a single question: With 50 years of stock market history and experience behind him, what should my readers think about this market?

This is when Leuthold admitted he was afraid, but buying stocks nevertheless.

"I've been scared to death of the market before and it's been the time to buy," he said, pointing out that the hundreds of data points the Leuthold investment team use to make buy-and-sell decisions have turned positive. Their core portfolio is now half invested in stocks - up from 30 percent earlier this year.

"You do have pretty good valuations here, and we do think the economy is OK. We're not expecting a double dip - we're probably going to see 2.5 to 3 percent GDP growth next year." He also expects a "Band-Aid" solution in Europe to address the uncertainty coming from Greece, Italy and Spain.

But several alarming issues loom: gridlock in Washington, the U.S. deficit and concerns about the long-term value of the U.S. dollar, to name three on the top of Leuthold's mind.

He said the last time individuals faced an economic crisis of this magnitude was in the 1970s. But investors who lost faith in the market back then could invest in Treasury bills and earn 15 percent in interest.

"Now there is nowhere to go with safety where you can get a decent return on your money," said Leuthold, who thinks the policy of keeping interest rates low is really hurting average investors, who are in over their heads to begin with.

"You can't just dump the money to people and say, 'You make up your mind (about investing for retirement).' You can't. They get frightened at the bottoms and sell out; they get boisterous at the tops and buy," he said.

I don't disagree, but individuals have to do something with their money, even in bleak times. So I pressed him for more insights. Here are his investing words of wisdom for my readers:

-"Opinions are for show; numbers are for dough." In other words, don't make investment decisions based on emotions, news reports or cocktail talk. Do your research. If you have a tendency to make emotional decisions, consider an asset allocation fund made up of a mix of stocks and bonds with a manager paid to worry for you.

-Be conservative. Save more, spend less because the idea that the future will always be better, well, "That's not necessarily true."

-Don't follow the herd. Although being in the middle of the herd is the most comfortable place to be, consider getting out of your comfort zone. "When you see everybody go one way, look at why they may be wrong."

-Go global. Investors should work toward having 50 percent of their portfolio based outside the United States, particularly in Asia. "The U.S. was the economic king of the world after World War II," Leuthold explained. "We had this huge wave behind the U.S. that gave us superior growth for 30 years. Then all of a sudden (other countries) started catching up. ... We go along like we're still the kings and can afford deficits as far as the eye can see and something is going to happen magically to support all these retired people with Social Security and Medicare. And it's a pipe dream."

-Remember that investing isn't about the warm fuzzies. It can be downright unnerving. One short-term, tactical play is to consider investing in European stocks with global earnings. He mentioned Nestle, Siemens and Unilever.

"They're cheap. They've been knocked down" because of the debt woes in Europe, he explained. "When it's time to buy, you won't want to. When it's time to sell, you don't want to."

By Kara McGuire

What's that they say about time flying when you're having fun?

After a half-century in the investment management business, one of the preeminent practitioners of the trade, Steve Leuthold, is relinquishing his roles as chief investment officer and co-portfolio manager of the mutual funds and private accounts at Leuthold Weeden Capital Management, the firm he founded in Minneapolis in 1987 and that now has $3.5 billion under management. He will continue to run the Leuthold Concentrated Core fund, which makes big bets on certain industry groups and asset classes, and is known as the CC fund, after one of Leuthold's favorite beverages, Canadian Club. The investment veteran also will remain on the boards of Leuthold Weeden and of its mutual funds.

Students of market history will be glad to know that he will continue to have a hand in shaping the proprietary research on which the firm's reputation was built. In addition, his card-carrying contrarian musings will still be available in his "View from the North Country" column, published in the firm's indispensable monthly "Green Book," otherwise known as "Perception for the Professional."

The good news is that Doug Ramsey, the firm's director of research and a longtime behavioral strategist, ascends to the post of chief investment officer, responsible for making asset-allocation decisions, running portfolios and overseeing the portfolio-management team. Eric Weigel, a veteran of such firms as MFS Investment Management and Pioneer Investments who recently joined Leuthold, becomes director of research.

Steve and Doug spoke with Barron's about the changes and their defensive stance on the market.

Barron's: You got defensive at just the right time in August.

Leuthold: Thanks to a signal from our major trend index. We both believe numbers are more significant than opinions, including our own, and it worked this time pretty well. When the index turned negative, we reduced portfolios to a 33%-to-34% net equity exposure.
Ramsey: We added a more global perspective within the major trend index, and it couldn't have been more timely. If you look at the Dow Jones Industrial Average and the Standard & Poor's 500, the Dow is off 16% from its high, and only 7% year-to-date. The S&P is down 17% from its high and only 10% year-to-date. Those numbers are completely misleading in terms of the scope of this global decline. Most developed countries and many emerging-market countries are down on the order of 25% to 35%. If you strip out the U.S. from the Morgan Stanley All-Country World Index, or look at the emerging-markets index and compare the U.S. action relative to those, the U.S. trades a lot like a big consumer-staple stock. The weights in consumer staples, and in health care and utilities—the traditional defensive sectors—are so much higher in the U.S. than they are in the rest of the world that the U.S. holds up relatively well throughout much of a typical bear market. That was exactly the case in 1990, when I started in this business, and what we are seeing right now reminds me of then, because the U.S. markets are giving a falsely optimistic view and belying how serious this decline has been.

We haven't reached the technical definition of a bear market on the Dow or the S&P, which would be a 20% decline, and so there is still debate as to whether this is a cyclical bear market, which we strongly believe it is, or just a serious correction. If you broaden your perspective to include markets outside the Dow and the S&P it is very, very clearly a bear market. The typical stock is down 20 to 35%. Some of the financial groups, the brokers and the banks, are down 35% to 40%. The S&P 500 High Beta Index is off 35% from its peak.

For a bear market, corporations seem to be in pretty good shape. Is it more a crisis in confidence driven by politics?

Leuthold: We've got three things going on that are really negative, not considering the major trend index. I have been very concerned about the U.S. and its fiscal responsibility and the problems in Congress. Then there is the euro problem. The crisis in Europe certainly affects the world. Then there's the possibility of a recession. These are major issues getting in the way of a new, significant bull market.
Ramsey: We recently examined the difference between what we call recession-related bear markets in the U.S. since 1945 and what we call noneconomic or stand-alone bear markets that are not immediately associated with recessions. There have been eight economic bear markets since World War II and five noneconomic bear markets. A classic example of a noneconomic recession would be 1987. There were a couple in the 1960s: 1962 and 1966. Interestingly, the magnitude of the decline in a noneconomic bear market is almost the same as it is in an economic bear markets. The median decline of economic bear markets is 30%. The median decline in the noneconomic bear markets is 27%.

Within your major trend index, are there any particular signals that stand out?

Leuthold: A whole section of the index is attitudinal measures. The more pessimistic people are in terms of put-and-call ratios and mutual-fund flows and so on, the more positive it is for the market. Vice versa, when those indicators show exuberance, it is a negative for the market. Those attitudinal measures are very, very positive now. Our intrinsic-value work, which consists of all different kinds of relationships to earnings and book value and cash flow and so on, is now somewhat positive. If we get to between 950 and 980 on the S&P 500, about 30% down from the April 29 peak, that would historically be a good time to start buying stocks, even if the major trend index remained negative.

Do you feel comfortable investing in the bond market?

Ramsey: No. Bonds are an accident waiting to happen. But I think we have grown tired of hanging around that intersection watching for the accident. In a bubble, there is always that final frenetic phase that I'd like to think is mostly completed. This bear market has unfinished business on the downside, and if the S&P is to get back to three-figure territory, which we think is likely, I don't know what the potential low yield would be. The best thing to do is to avoid bonds, rather than to try to actively short them at this point.
For me, one of the long-term tragedies is that the stock market is trading today at a level that we first crossed on the upside back in 1998. I was so bearish then, that had you told me that prices would be unchanged 13 years later, I would not have been surprised. But I certainly would have expected better value would have been re-established in the U.S. stock market by virtue of 13 years of flat action and improving fundamentals. It shows how extreme those late 1990s valuations were.

With the S&P at 1130 as we speak, that's 16.5 times normalized earnings, which is the exact median of the S&P multiple back to 1926. That's a little bit cheap, relative to the past 55-year history, but you would think that after 13 years of going nowhere, albeit in an interesting way, that valuations would look much better. The good news is there is some very good value right now outside the U.S.

Five-year normalized earnings on the MSCI World index are at a multiple of 12.5 times. Emerging markets are at 15.5 times, and I would argue they should trade at a premium valuation, and in the next cyclical bull market they will trade at a higher valuation.

Stunningly, Europe trades at 10 times normalized earnings. The U.S. is trading at a 65% P/E premium to Europe. The historical average has been more like 15%. You could argue maybe there should be some additional premium in this environment, given what Europe is going through, but the odds are that this is going to narrow here in the next 12 to 24 months.

Why has the broad market not fully reflected the viciousness of this correction?

Ramsey: The U.S. is a relatively defensive market. Safe havens are the last to fall, and we are starting to see some of that. That is encouraging. We have seen gold falling in concert with the stock market.

This overall cyclical bear market could be in the seventh or maybe the eighth inning. While the typical noneconomic bear market is almost as great in magnitude, at 27% versus 30% for the economic bear market, the positive news is that the typical noneconomic bear market is much shorter. It tends to last six months, compared with 18 months for recession-related ones. Since the peak at the end of April, we are five months into it.

So we could be seeing a reversal soon?

Ramsey: There could be a fourth-quarter bottom.

What are some positives for the market? Do you view mergers and acquisitions as an area to be enthusiastic about? What's going to provide some support?

Ramsey: The key positive on which I focus is housing. Time has marched on from the housing bubble peak, and currently we are putting up about 600,000 units per year versus a rough estimate of household formation of about 1.2 million per year in this country. We are building about half of what we need. There was clear overbuilding, but each month that goes by we are rectifying that. We are closing that gap by about 50,000 per month. Now the question remains: What was the ultimate scale of the overbuilding? What's the shadow inventory? I don't know, but we were writing about this in 2007 and '08. The cure to an overbuilt housing market is the only reliable cure to any busted asset bubble, and that is time. I don't think the housing market is going to go any lower.

Acquisitions are another positive. Corporations have the cash to expand and make acquisitions. We just saw the largest ever, all-cash industrial acquisition with United Technologies [ticker: UTX] agreeing to pay $16.5 billion for Goodrich [GR]. It's all about rekindling animal spirits, and if this bear market comes to a conclusion here over the next couple of months, and we get a nice bounce, the market itself has a way of firing back up those animal spirits.

What sectors should people focus on?

Ramsey: A couple of health-care groups are on the top of our quantitative rankings. Managed health care, the HMOs, is a group that we have held for quite some time. They are still very cheap stocks. Also, the pharmaceutical stocks. Those would be a couple of more defensive-oriented groups that stand a chance to maintain leadership when the market reverses to the upside. That's as opposed to the classic defensive safe havens like the electric utilities and tobacco, groups that are probably just getting a breath of life more because of the market mayhem than any real fundamental turn.

What about technology?

Ramsey: I am intrigued by the action in the technology sector throughout this correction. Those big Nasdaq stocks, on the whole, tend to underperform in a declining market but they have held pretty firm. The 10 largest tech stocks are down to about 10 times cash flow.

Semiconductor equipment is also a group within technology that looks attractive in part based on valuations, and in part based on the long period of retrenchment that the technology sector has gone through now really over the last eight to nine years, combined with the recent market action of holding up well in a market in which you'd expect them to be downside leaders. In looking forward to the next cyclical bull market—and we could witness the beginning of that within the next month—tech has as good a chance as any sector to be the leader of that.
Leuthold: One concern with the tech group is that their record profit margins are beginning to fade some. On the other hand, they are cheap, and some, like Microsoft [MSFT], are really cheap. There is lots of liquidity. Besides that, for many of them, more than half their earnings are coming from overseas operations and so they are really a global play and not just a play on U.S. technology.
Ramsey: We need to get through this bear market before we start planning for the next bull, but we would expect something fairly similar to what we have just gone through. This was a 26-month run, which isn't too far off the historical median. We need to disabuse ourselves of this recently adopted notion that bull markets and economic expansion tend to last six to eight years. The historical norms are much shorter than that.

What about the financials? Can we begin a bull market again without leadership from the financials?

Ramsey: I would argue that you can see a cyclical bull market take off without the leadership of the financials. You would certainly want some participation but, quite frankly, financials underperformed for most of the length of this recently completed bull market. There was a massive six-month bounce from March through September of 2009, but they have underperformed from there. We've done a fair amount of work looking at busted asset bubbles and also busted bubbles at the sector level and, unfortunately, the financial sector is following the path of the tech sector on a relative basis almost to a T in terms of the wipeout in market losses— 80% over a 2-to-2½-year period.
Leuthold: I wouldn't be surprised if we return to submarket multiples in the banking industry.

Thanks, gents.

By SANDRA WARD

For interview video click here.

Marc Faber, publisher of the Gloom, Boom & Doom report, appeared on Bloomberg Television’s “Street Smart” with Bloomberg TV anchors Carol Massar and Matt Miller today.

Speaking on the phone from Thailand, Faber said that the markets are very oversold, the Fed is “underestimating the severity of the economic downturn” and that gold is the best investment right now. Excerpts from the interview can be found below, courtesy of Bloomberg Television.

Faber on whether he thinks the Fed did the right thing by keeping rates low:

“I think they did the right thing that they didn’t allow QE3. They can watch the reaction of assets, whether they will go lower. I think the market is more likely to move still lower. We are very oversold. We can have a rebound like we did today, maybe we’ll have a rebound next week or so, but in general I think we will test the July lows of last year, the S&P at 1,010. After that, probably we’ll get probably a QE3 announcement.”

On why he thinks the Fed is waiting on QE3:
“I think the Fed is underestimating the severity of the coming economic downturn. Essentially they spent their bullets. It is very difficult to follow through with QE3 right here, because you have gold prices going ballistic, and you have the dollar being very weak, and so there are unintended consequences with implementing QE3 right here.”

On what Faber thinks the Fed should do:
“The best [the Fed] could do for markets would be to collectively resign…I think sometimes the best is to do nothing. I welcome the decision, at least today, that they aren’t doing anything worse than what they have already done.”

On whether it makes sense to provide any kind of stimulus:
“What has QE1 and QE2 done for the labor markets? Nothing at all. It’s done nothing for the housing markets. It’s lifted stocks and it created wider wealth inequality in a sense that people who own assets have done very well, and people that are the lower-income recipients groups, they are hurt by rising energy prices and food prices.”

On what should be done for the U.S. economy:
“From 1981 to 2007, we have an economy that was living beyond its means. As a result of continued debt accumulation, GDP was higher than would otherwise have been the case. Now we have a period of sub-par growth that can last for quite some time now, and like in the case of Japan after 1989, people instead of being encouraged to spend, they should be encouraged to save more, and the U.S. should save more and spend less. And then capital spending will essentially pick up.”

On the manic behavior in markets:
“I personally think the Treasury market, the long-dated, are a bubble and it will be one of the worst investments for the longer term if you buy a 10-year, a 30-year U.S. Treasury so I’m a bit puzzled that Treasuries are now yielding, are essentially near record lows. I would rather sell Treasuries.”

“The stock market peaked out on the 2^nd of May on the S&P at 1370. So we’re now around 1010. For many stocks we’re down 20% or so. We’re very oversold. I think a rebound is coming but you can forget about a new high. That is out of the question. Because the technical picture is horrible, horrible. ”

On why investors are continuing to move to Treasuries:
“I’ve been in this business for 40 years and on many occasions, nothing made sense to me….I think the Treasury market is another example of a gigantic bubble. The problem with the Federal Reserve policy of essentially zero interest rates is that they are essentially throwing money at the system, but they don’t control where the money will flow to. It can flow at some point into commodity-related stocks. It can flow into gold, oil, treasuries, but it doesn’t flow evenly into these assets. In my opinion, the Treasury, the long-dated Treasuries are essentially the short of the century thing here.”

On whether gold is a bubble:
“I don’t think it is a bubble, but I think the gold market has exploded to the upside recently and the correction is overdue. But as I have always maintained for the last 12 years, every responsible adult should gradually accumulate gold, because not owning any gold is the trouble with government. I don’t understand. People of Bloomberg, I hardly know anyone who owns any gold physically. All of the Bloomberg employees are intelligent people. They listen to the news every day. They make the news every day. Hardly anyone owns any gold.”

On what you can do with gold:
“I disagree [that you can't do anything with gold.] You give your girlfriend copper rings and I give them gold rings and I keep them longer.”

On how Faber would play the markets right now:
“I think right now the technical picture is so horrible that I would use a rebound as a lightning up opportunity. I think [equities] will move lower. I mean, some say you should move back into emerging economies because the fundamentals of emerging economies are far better than the fundamentals of European countries and the fundamentals of the United States. This is something I will consider.”

“The only thing I have to say, basically the market has sold off in such a rapid way and with so much momentum that I am smelling as if something really wrong happens in the next two or three months, because the market is a discounting mechanism. Like March 2009 the market started to go up and people were baffled why it started to go up. Now it starts to go down, and maybe after three months people will wake up and scratch their heads and say now, we know why it started to go down, because maybe there is geo political problems, maybe the Middle East blows up, maybe the economy is horrible.”

Steve Leuthold of Leuthold Weeden says that a market rebound would create selling opportunities for investors.

Click here for interview video.

Christine Benz: Hi. I am Christine Benz for Morningstar. The market has suffered a steep pullback over the past few weeks. Here to provide some context on the recent market action is Steve Leuthold. He is the founder and chief investment officer at Leuthold Weeden Asset Management. Steve thanks for being here.

Steve Leuthold: I am delighted.

Benz: So, Steve you wrote a commentary that went out to your clients late last week. You talked about why you think the market is currently in a bear market. You think stocks are in a bear market. What are the three big factors that you noted that you believe to be weighing on stocks currently?

Leuthold: Well, I think, and this is kind of in chronological order maybe, but I think the complete failure of the what I call the 'Congressional clowns' to accomplish anything meaningful in addressing the deficit was probably the starting point. And the deal that they came up with, as best as we can determine, shaves maybe $22 billion in cuts over the next year, with no revenue increases, and it didn't even close the loopholes that are there in terms of the tax code which applies to hedge fund managers and carried interest and also applies to the oil companies and to a lot of the subsidies that still exist like the subsidy for ethanol.

Benz: Right.

Leuthold: To me it doesn’t make any sense whatsoever, but it seems to me it was a fault of both sides; the Democrats and the Republicans. And all they are interested in apparently is retaining the good things that they can keep for their folks back home and for the people that contribute to their campaign funds. I mean it's really disgusting. You know, Obama Monday said the U.S. is still an AAA country, but the Congress is a CCC- as far as I can see it, and that's one big problem.

The other one is certainly what we saw a week or so ago in terms of the government estimates on GDP growth that were revised back down for the first quarter, down to 0.3% which is really pretty low. And I think it probably stimulated more thought that we're headed not, I don't think, for a double dip, we're maybe headed for a new recession. It may take another two quarters to see that, but people say, "Well, it can't end that early." I mean, we have expansions that are for 100 months, 110 months, and so on. But this is a different environment that we saw back in the first recession. I mean, we had basically some fiscal responsibility on the part of the politicians. We were still a really dominant growth country at that time, which we no longer are, and it's very possible that the expansion phase would only run maybe 30 months which is about the long-term average for expansion.

So, we're no longer the super nation in the world, and we've got to realize that, especially when you look at our balance sheet.

And then the most recent thing, number three, was the triple whammy or as my friend Bob Farrell calls it, the Perfect Storm. The third thing was what's happening in the eurozone and the real difficulties that are there. Even the dollar looks better than the euro. I mean, you are seeing the dollar up today after the downgrade. You are seeing the yields on 10-year Treasuries that are down because the money is flowing in here because it’s still regarded as a safe place, but that’s only relative to what you have available elsewhere like in terms of the eurozone.

Benz: Right. So, Steve, you didn’t even mention the downgrade of U.S. Treasuries by S&P. It sounds like you think that that’s pretty much a nonevent for the markets?

Leuthold: Oh, well, yeah. I mean you hear a lot of talk about that. Everybody tries to blame it on that, blame it on Standard & Poor's but the fact is, it’s the U.S. Congress that has made the situation difficult. And if I were rating them, I wouldn’t even rate them a AA+. I’d rate them maybe AA-. But what we have failed to do in addressing the deficit is absolutely embarrassing, and with what has gone on in Congress over the last two months, as an American I am embarrassed about what’s happened. And I think a lot of other people are.

Benz: So, you noted Steve in your recent report that you are expecting stocks to have maybe a pretty significant rebound, but you would view that, for your clients, as a selling opportunity because you think there is more pain to come. What’s your thinking there?

Leuthold: I mean, this is a really oversold market, and everyone is negative, whether it’s institutions or individuals or whatever, so if market history is any evidence, we should be pretty close to seeing a rebound here.

And before I'd reduce our equity exposure more, we'd like to see a rebound, and it might retrace about maybe half of the decline. So we'd maybe go up to 1,250, 1,260, or 1,270 on the S&P, which would be some kind of rebound, and we would view that as the selling opportunity because I'm fairly certain that we're headed not for a double dip, but a new recession.

Benz: So you're looking for opportunities to trim equities more, but I guess the big question is what do you think is attractive relative to stocks right now? Where are you finding places to put that cash to work?

Leuthold: The most attractive places are where the internal growth is greatest.

Benz: So developing markets?

Leuthold: You bet, including China. And sure Chinese stocks have gone down with this market. But you should look at the rebound prospects. I think also a number of really good-quality European stocks are due for some kind of a for rebound. They've gone down more than the U.S., and we have a lot of those companies that are global companies, too. So I really don't think that more than maybe 40% or 30% of an equity portfolio should be in U.S. stocks. I think it should be outside the U.S.

Benz: So in some ways, it would be kind of mirroring the extent to which the U.S. takes up a piece of the global market cap, such as maybe thinking about setting the baseline?

Leuthold: Absolutely. I mean, you take IBM, and that's a global company. Or you take Siemens in Germany, and that's a global company. I think these are the ones that are probably the most undervalued, and that along with the pure plays is places like South Korea, maybe in Indonesia, certainly in China, and maybe Taiwan, these are the places I'd rather be in. I'd position myself to be there.

Benz: And the pullback in those markets has made them more attractive to you?

Leuthold: It's actually the growth, the internal growth, in the economies. The U.S. has been a wonderful growth economy since World War II. And at the end of World War II we had all the liquidity in the world; we had all the growth potential. We financed the revival of Europe. We financed the revival of most of Asia or great part of Asia. But the U.S. in this whole growth thing where you had a 100-month and 150-month expansions in the last 20 years, that was kind of the result of what had been built up, and we didn’t have any rivals at that point, other than Russia which was a military rival. But we didn’t have any economic rivals. However, now we do really have economic rivals, and our industrial base is broken down. Also our earnings potential is broken down, and the margins that we see, which are at record levels for U.S. companies, are probably going to come down.

Benz: So, I know, Steve, at various points in time your portfolios have held gold. I'd like your take on that asset class right now; it’s been hitting new high seemingly every day. I am wondering if that’s something that you would find attractive at this point in time.

Leuthold: Well, we still have 5%-6% in gold and silver. But I've been around for 50 years, and when you get too much exuberance anywhere, like we're seeing in gold right now, that doesn’t last forever. And I am reluctant to add at this point, and I have faith that the U.S. is going to--and maybe this crisis is going to do it--it’s going to come back to reality and start reducing the deficit. I think that’s probably the best thing about this correction. It's got to take a shock, it’s got to take a crisis, to get our representatives and senators back to thinking about what’s good for the country rather than what’s good for them.

Benz: Thank you so much for sharing your insights with us today. It’s always great to hear from you, Steve.

Leuthold: All right. Nice to talk to you.

Benz: I am Christine Benz for Morningstar. Thanks for watching.

By Christine Benz| 8-8-2011 6:07 PM

Steve Leuthold, whose Leuthold Global Fund (GLBLX) beat 92 percent of its rivals in the past year, said political uncertainty has pushed U.S. stocks into a bear market even as the economy may still be growing.

“We are in a bear market,” Minneapolis-based Leuthold said today in an interview with Betty Liu on “In the Loop” on Bloomberg Television. “I am not so sure that it is an economic bear market -- we actually may have a couple more quarters of expansion here.”

Benchmark indexes had their biggest slump since December 2008 yesterday on concern that a downgrade of the U.S. credit rating by Standard & Poor’s may threaten the economic recovery. The S&P 500 slipped 11 percent in three days, the most since November 2008, and fell to the lowest since September as European leaders struggled to contain the region’s debt crisis. The S&P 500 dropped 18 percent from this year’s high on April 29 through yesterday.

Leuthold said it was “the perfect storm,” in which “confidence went out the window both with institutions and individuals -- and when there is no confidence, there are no buyers.”

The investor said he has 45 percent of his asset-allocation fund holdings in equities and may cut that to 35 percent if the market rallies. The S&P 500 gained 2 percent to 1,141.95 at 1:38 p.m. in New York, the biggest intraday advance since Sept. 1.

“We wish we were at 35 percent, but the market came down too fast and we didn’t have a chance to do that,” he said.

Leuthold, who bet on stocks before the S&P 500 reached a 12-year low in March 2009, estimated that the gauge may fall to 950 to 1,000, about 10 percent to 15 percent below yesterday’s close.

“When you see the market get down to the bottom quartile of historical valuations, at that point we generally would get aggressive and say it has to get better from here,” he said. “That’s a long way away. We got a good rally before then, I’m sure. In fact, maybe this is the beginning of it.”

By Nikolaj Gammeltoft and Betty Liu - Aug 9, 2011 2:01 PM ET