Beyond Bulls & Bears

Three Takes on 2012

Hindsight may be 20/20, but perfect foresight sure would be nicer to have.  The future is unknowable, of course, but that doesn’t mean we have to go blindly tripping into it.  Somewhere between the randomness of throwing a dart at a board and the fictional “vision” of E.S.P. lays the gray area of the educated guess.  What use is 20/20 hindsight, after all, if we can’t use it to learn some lessons?

Fortunately for us we have access to industry experts Ed Jamieson, Peter Langerman, and Gary Motyl, three men with about 75 years of investment experience between them.  You’ve already read as they opined on the future of Europe and the potential market impact of the U.S. presidential election, and in this post you’ll hear from them one more time as they analyze trends, possibilities and probabilities and postulate on what may be in store for the markets in 2012.

Ed Jamieson
Ed Jamieson

We’ll begin with Franklin Equity Group CIO Ed Jamieson’s cautious optimism:

“I think one thing that could play out is the relative strength of U.S. corporations and the relative strength of the U.S. economy. I think balance sheets of U.S. corporations are strong, and cash flow levels are at all-time record highs. With respect to the U.S. economy, we’ve been seeing resurgence in U.S. manufacturing—and retail sales recently reaching an all-time record high. And, with housing, there have been some recent signs that it may be turning around. And when it does turn around, the U.S. construction industry could be a real engine of growth.

However there are areas of concern. There are huge efforts to contain health-care spending and costs in the U.S., and that’s not a great environment for healthcare companies. The U.S. housing market is still very anemic and until it comes back, that will likely dampen growth somewhat. Banks are still in a capital-raising and capital-repairing mode, and we have very low interest rates and very weak loan demand, so companies in the financial sector are another area of concern.  I think near-term growth out of China and India is slowing, but if you look out over the next decade, I think China and India potentially will still be huge engines of growth for the worldwide economy and for U.S. companies, in particular, that have tremendous opportunity for end-market demand.”

Peter Langerman
Peter Langerman

While Mr. Jamieson seems to see a bit of a mixed bag for the U.S. market in 2012, Mutual Series CEO Peter Langerman sounds more optimistic about the potential crop of opportunities the opportunistic value investing group hopes to find globally, regardless of whether the market stabilizes or continues a bumpy ride:

“We always try to be somewhat defensive. So with the names that we own—whether they are in healthcare, financials, autos or whatever—we look for companies that are trading at significant discounts to their intrinsic value and have staying power through a time of uncertainty. Having said that, we’re also looking to be contrarian and to look where both the greatest fear and the greatest concern is in the marketplace.

We look to take some money off the table when companies reach closer to our valuation targets and look to redeploy it in other places, perhaps where the markets are still overly discounting the concern. We’ll continue to have exposure to areas like healthcare and tobacco. If the current trends continue, my guess is that we will be, by and large, looking to trim positions as they get to full and fair value, and we’ll be looking, perhaps, to deploy those proceeds to different areas which haven’t had the same kind of appreciation. Our view is that there will be continued volatility and significant ups and downs that will present opportunities as well as some risks for investors going forward.

Gary Motyl
Gary Motyl

Templeton Global Equity CIO Gary Motyl is also striking an upbeat note, telling us he believes the overall economic picture is more positive, even with the continuing challenges, and emphasizes that the best method for investors to combat volatility may lie in placing less weight on recent events and short-term market developments:

“Some of the macroeconomic numbers that have come out of the U.S. and Asia have been pretty reasonable. Some of the recent employment numbers in the U.S. have looked pretty good. We expect that trend to continue.  Some of the other issues that have been nagging the U.S. economy, like the housing issue, are probably going to remain with us through 2012. The global economy overall appears to be in reasonable shape.  While we expect the Chinese economy to slow its growth rate in 2012, it should still remain pretty robust by most other standards. The inflationary outlook appears to be contained. We’re not expecting a huge rise in either consumer or producer prices over the next 12 months.

What we think investors really are going to be focusing on in 2012 is the fiscal discipline that various countries will adopt, especially considering what’s happening in Europe. We think that’s what investors really need to get comfortable with—the continued focus on fiscal policy, specifically the liquidity and solvency of the European banking sector. We are probably more optimistic with regard to global equities than we’ve been in some time. And this gets back to valuations, which we think are at historically low levels.”

The bottom line?  Though the U.S .economic landscape has been showing signs of improvement, market choppiness doesn’t seem likely to go away over the near term, and as Europe works to solve its sovereign debt issues, it will continue to be a source of global uncertainty. 

As Sir John Templeton famously said:

“The only certainty about the future is the fact that it will be different from the past.”

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