Stock, Bond Slumps Signal Worse Than '94 on Inflation

Bloomberg reports: 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 percent since March and investors in Treasuries lost 2.88 percent, the steepest combined plunge in 14 years, according to data compiled by Merrill Lynch & Co. 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 LLC, BlackRock Inc. and Cambiar Investors LLC, 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 percent 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 Inc. for the best dividend yield since 2006. Cambiar says Marathon Oil Corp. 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.''

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