hope he is right

Legg Mason's Bill Miller Expects Better 2009

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NEW YORK -(Dow Jones)- Asked to describe his performance this year, value
manager Bill Miller said that "terrible," "disastrous" and "awful" are words
that come to mind. But Miller is expecting better for himself and other value
managers in the coming year.


It looks as if the "bottom was made" in the stock market earlier this year,
both from a psychology standpoint and "from what we've seen in the credit
markets," said Miller, chairman and chief investment officer of Baltimore-based
Legg Mason Inc.'s (LM) Legg Mason Capital Management Inc.


If we aren't going to have 20% unemployment and gross domestic product down
15% or 20%, historical odds favor the market being up well over 20% in the next
year, Miller said at the money manager's year-end briefing.


"Panic is really hard to sustain," said Miller, so the worst case for next
year "is the market just moving sideways."


Any recovery from this year's slaughter, however slight, would likely be a
welcome respite for Miller. His Legg Mason Value Trust (LMNVX), which
outperformed the S&P 500 for 15 consecutive calendar years through the beginning
of 2006, is down more than 59% this year through Tuesday and more than 12% over
five years, according to Morningstar Inc. In comparison, the average large blend
fund has lost about 42.4% this year through Tuesday, and is down about 3.3% over
five years, Morningstar said.


"We have performed far worse than I would have predicted we would," said
Miller. "We have had maybe a tougher time than most value investors, but few are
doing well because value spreads have widened." When those spreads start to
narrow, value managers should do very well, he said.


Miller said he has seen characteristics of late that are consistent with a
market bottom, such as a series of lows over a course of a few months. No one
knows for sure whether those signs mark the end of this bear market or just a
bear-market rally, he said. But Miller echoed Warren Buffett, saying, "If you
can buy U.S. equities at these prices, you are likely to do well over time."


Value Trust is experiencing redemptions, though they have been "pretty steady"
over the past year or so, meaning that they haven't accelerated or declined over
the period, Miller said.


The fund is pretty much fully invested, though its cash position is currently
higher than its normal "1% or so," he said. "It's not like we are sitting out
there with 30% or 40% in cash like a lot of hedge funds are."


What he's trying to do and what he believes other value managers are trying to
do is to "keep moving your capital to where it can give you the best risk-
adjusted returns over whatever time horizon," Miller said.


Since the end of the second quarter, there's been "a pure scramble for
liquidity," he said. "People sold without regard to value." As a result, quality
is very cheap now, Miller said.


The only place where relative values aren't as good is the consumer staples
sector as well as companies regarded as bulletproof, such as Wal-Mart Stores
Inc. (WMT) and Johnson & Johnson (JNJ), Miller said. Colgate-Palmolive Co. (CL)
is a good example, he said. He noted that at one point a few days ago, Colgate
traded at a higher price/earnings multiple than Google Inc. (GOOG), likely
because Google is younger and less well-known. Google was one of Value Trust's
weakest performers in the quarter ended Sept. 30, according to a regulatory
filing made Tuesday.


The Value Trust fund currently holds Time Warner Inc. (TWX), which closed at $
9.11 Wednesday, and Citigroup Inc. (C), which closed at $7.82, but nothing else
in the single digits, Miller said.


The fund took a stake in credit-card company American Express Co. (AXP) in the
third quarter, according to the filing Tuesday. "You can buy now the No. 1
companies in a wide variety of industries" very cheaply, Miller said when asked
about that purchase.


Value Trust also added positions in Bank of America Corp. (BAC), EMC Corp. (
EMC), Microsoft Corp. (MSFT), NYSE Euronext (NYX) and 3M Co. (MMM) in the third
quarter, according to the SEC filing. Among the stocks the fund sold were
American International Group Inc. (AIG), Countrywide Financial Corp., Expedia
Inc. (EXPE), Freddie Mac (FRE), Goldman Sachs Group Inc. (GS) and Sprint Nextel
Corp. (S), according to the filing. Bank of America bought Countrywide in July.


Among Value Trust's top 10 holdings as of Sept. 30 were Amazon.com Inc. (AMZN)
, Citigroup, Sears Holdings Corp. (SHLD), General Electric Co. (GE), JPMorgan
Chase & Co. (JPM) and Eastman Kodak Co. (EK).


Asked how far along we are in the delevering process, Miller made it clear
that things can change quickly.


"There is a huge amount of cash sitting out there on the sidelines," he said.
"To the extent that that cash starts coming in, delevering will essentially be
over."


Miller said the Federal Reserve should "buy everything in sight" because "the
taxpayer is going to make a killing." There is virtually no investor who doesn't
believe there is value in the market, he said.



-By Daisy Maxey, Dow Jones Newswires; 201-938-4048; daisy.maxey@dowjones.com