ROUNDTABLE PREDICTS THE 2011 MARKET
Let’s switch to the market. Where will it close this year?
Hickey: If the Fed continues printing, the market will go higher. It will continue printing, because the economy probably would collapse if it didn’t. The stock market could go up 10% this year.
Bill, what do you think?
Gross: As I said, corporations are in a good position. With real GDP growth of 4%, the market could go up 5% to 10%. But if bond yields move higher, as they gradually might do, corporate bonds could pose some competition to stocks. High-yield bonds are less volatile than the stock market has been, and they provide similar returns. Stocks aren’t in a position to generate double-digit returns, given the expected growth rate of the U.S. and other developed economies.
Abby?
Cohen: Fair value for the S&P 500 is about 1500, which implies a return this year of about 20%. Some of that gain will come in the form of higher dividends. Many companies have built up enormous cash positions in the past two-three years, and will return some of that cash to shareholders. Companies in the S&P 500 are well positioned. These are large companies with access to the public markets. They can borrow money when they need it. There will be ongoing pressure for small and midsize companies that are dependent on small and midsize banks, which aren’t particularly robust. Roughly 40% of S&P profits comes from outside the U.S., which is also a benefit. Volatility has declined, which is good for investors. Correlations among assets and among sectors also have declined. That suggests good security selection will generate better results this year.
Meryl, are you any more bullish after this morning’s discussion?
Witmer: The market doesn’t look cheap to us. Three of my five stock picks emerged from bankruptcy protection. We really have had to hunt to find values. I don’t see the market going up a lot this year. Unless it is a special situation, it is best to wait for a downdraft.
Schafer: I agree with Abby about diminishing correlations. If the trend continues, it will be a really good year for stockpickers, long and short. The market will end the year higher, but right now there is too much bullishness.
MacAllaster: I see another 1,000 points on the Dow and 90 points on the S&P 500, so that’s a gain of about 8%.
Felix, what do you see?
Zulauf: The market will range between 10% up and 10% down. I don’t know where it will end the year. The U.S. central bank will be forced to quit quantitative easing by the middle of the year as political pressure increases, but it won’t shrink its balance sheet. The ending of QE will take some excitement out of the stock market. Then there is room for unpleasant surprises. From time to time, the Chinese could shock the markets by acting more serious about tightening. I don’t like the widespread optimism right now, and I can’t join the bandwagon. The crisis in Europe is continuing. We don’t know where it will lead and how it will affect the U.S. Corporate profit margins can’t stay at such high levels. They will probably revert to the mean, which historically was 5.5% or so, not today’s 7%.
Gabelli: Earnings of the companies we follow are going to remain quite vibrant, even with rising input costs. It is a good market from a flow-of-funds point of view. Also, consultants have been advising corporate and pension and endowment funds to shift money out of domestic equities and into emerging markets, and away from active managers and into index and hedge funds. These funds have shifted so far away from domestic equities that an air pocket has been created in valuations of high-quality U.S. stocks. There are significant bargains. By the end of the year, the market will be up 5% to 10%. There will also be more deals.
Marc, much as we dread to hear it, what are you thinking?
Faber: When you have short-term rates at zero, it is difficult to value anything. The market could be a lot more volatile in the next five years than has been suggested here. I expect to see the market move up and down at least 20% this year, as it did in 2010. The S&P was at 1219 on April 23. It dropped to 1010, and now we’re at 1270. Daily trading hasn’t been volatile lately, but there has been a lot of volatility in individual stocks.
The Dhaka Stock Exchange in Bangladesh dropped by 16% in two days. They closed it down and now they have riots. I guarantee you that emerging economies aren’t going to tighten. Everywhere in the world, once markets drop by 10% or 15%, QE3, QE4 and QE5 will come.
Gross: How can you compare Bangladesh to tightening in Brazil or China or India?
Faber: The central bankers of the world are hostage to asset markets. They will not let asset markets drop significantly. They would rather let their currencies go. Worldwide, they will print money. In such an environment, I look to corporate bonds, equities, global real estate and precious metals and commodities. I don’t want to be in cash and government bonds in the long run.
But where will the market go this year?
Faber: The U.S. market has almost doubled since March 6, 2009. Some emerging markets have gone up much more than that. A correction is overdue. Then we’ll have the second leg of the bull market. In the third year of the presidential cycle, you want to be in the most speculative stocks. As we approach the 2012 election, the Fed is going to print like hell. I am bearish about everything, but in my bearishness I’ll be better off in stocks than government bonds.
So you’re bearish, but you’re not.
Faber: I’m very bearish about the ultimate outcome.
Let’s switch to the market. Where will it close this year?
Hickey: If the Fed continues printing, the market will go higher. It will continue printing, because the economy probably would collapse if it didn’t. The stock market could go up 10% this year.
Bill, what do you think?
Gross: As I said, corporations are in a good position. With real GDP growth of 4%, the market could go up 5% to 10%. But if bond yields move higher, as they gradually might do, corporate bonds could pose some competition to stocks. High-yield bonds are less volatile than the stock market has been, and they provide similar returns. Stocks aren’t in a position to generate double-digit returns, given the expected growth rate of the U.S. and other developed economies.
Abby?
Cohen: Fair value for the S&P 500 is about 1500, which implies a return this year of about 20%. Some of that gain will come in the form of higher dividends. Many companies have built up enormous cash positions in the past two-three years, and will return some of that cash to shareholders. Companies in the S&P 500 are well positioned. These are large companies with access to the public markets. They can borrow money when they need it. There will be ongoing pressure for small and midsize companies that are dependent on small and midsize banks, which aren’t particularly robust. Roughly 40% of S&P profits comes from outside the U.S., which is also a benefit. Volatility has declined, which is good for investors. Correlations among assets and among sectors also have declined. That suggests good security selection will generate better results this year.
Meryl, are you any more bullish after this morning’s discussion?
Witmer: The market doesn’t look cheap to us. Three of my five stock picks emerged from bankruptcy protection. We really have had to hunt to find values. I don’t see the market going up a lot this year. Unless it is a special situation, it is best to wait for a downdraft.
Schafer: I agree with Abby about diminishing correlations. If the trend continues, it will be a really good year for stockpickers, long and short. The market will end the year higher, but right now there is too much bullishness.
MacAllaster: I see another 1,000 points on the Dow and 90 points on the S&P 500, so that’s a gain of about 8%.
Felix, what do you see?
Zulauf: The market will range between 10% up and 10% down. I don’t know where it will end the year. The U.S. central bank will be forced to quit quantitative easing by the middle of the year as political pressure increases, but it won’t shrink its balance sheet. The ending of QE will take some excitement out of the stock market. Then there is room for unpleasant surprises. From time to time, the Chinese could shock the markets by acting more serious about tightening. I don’t like the widespread optimism right now, and I can’t join the bandwagon. The crisis in Europe is continuing. We don’t know where it will lead and how it will affect the U.S. Corporate profit margins can’t stay at such high levels. They will probably revert to the mean, which historically was 5.5% or so, not today’s 7%.
Gabelli: Earnings of the companies we follow are going to remain quite vibrant, even with rising input costs. It is a good market from a flow-of-funds point of view. Also, consultants have been advising corporate and pension and endowment funds to shift money out of domestic equities and into emerging markets, and away from active managers and into index and hedge funds. These funds have shifted so far away from domestic equities that an air pocket has been created in valuations of high-quality U.S. stocks. There are significant bargains. By the end of the year, the market will be up 5% to 10%. There will also be more deals.
Marc, much as we dread to hear it, what are you thinking?
Faber: When you have short-term rates at zero, it is difficult to value anything. The market could be a lot more volatile in the next five years than has been suggested here. I expect to see the market move up and down at least 20% this year, as it did in 2010. The S&P was at 1219 on April 23. It dropped to 1010, and now we’re at 1270. Daily trading hasn’t been volatile lately, but there has been a lot of volatility in individual stocks.
The Dhaka Stock Exchange in Bangladesh dropped by 16% in two days. They closed it down and now they have riots. I guarantee you that emerging economies aren’t going to tighten. Everywhere in the world, once markets drop by 10% or 15%, QE3, QE4 and QE5 will come.
Gross: How can you compare Bangladesh to tightening in Brazil or China or India?
Faber: The central bankers of the world are hostage to asset markets. They will not let asset markets drop significantly. They would rather let their currencies go. Worldwide, they will print money. In such an environment, I look to corporate bonds, equities, global real estate and precious metals and commodities. I don’t want to be in cash and government bonds in the long run.
But where will the market go this year?
Faber: The U.S. market has almost doubled since March 6, 2009. Some emerging markets have gone up much more than that. A correction is overdue. Then we’ll have the second leg of the bull market. In the third year of the presidential cycle, you want to be in the most speculative stocks. As we approach the 2012 election, the Fed is going to print like hell. I am bearish about everything, but in my bearishness I’ll be better off in stocks than government bonds.
So you’re bearish, but you’re not.
Faber: I’m very bearish about the ultimate outcome.
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