Barron's bullish on TEX and FHN and The Round table back in action.
Love the round table group. Most participants are expecting a crummy economy but are tepidly bullish on stocks. My favorite quote comes from Abbey Joseph Cohen:
"Unlike others at this table, I have to publish price targets. It is part of my day job. We've forecast the S&P 500 will be at 1675 at the end of 2008, and the Dow at 14,750. In '07 we hit our price targets for the year in June. Of course, the market performed poorly thereafter."
All I want to know is do you think that makes you right or wrong on your 2007 prediction?
Other notable quotes:
"So, I'm the first of the grim reapers. I'll start with the economy. It's important to distinguish between the U.S. economy and the global economy; the U.S. economy is much worse, and is nearing an inflection point.
We're looking at slow growth, and maybe, in a quarter or two, negative growth. Risk markets are at risk, and without the ability to pump up consumption through asset inflation, we're going to have a difficult time in 2008 and beyond. For years the economy's growth has been predicated on asset inflation -- stocks in the 1990s, then housing. There are no large, classic asset categories left to inflate, and as some assets deflate -- namely housing -- credit contracts. Economic growth will be below zero or mildly above it for a long time, and nothing like what we've grown used to in the past 10 to 15 years. Get used to anemic growth or a mild recession in terms of the economy, job creation and wealth creation. It's not a favorable forecast."
"Equity prices have increased in dollar terms, but in euros the S&P 500 is down about 45% from its peak in 2000 and the Nasdaq is down 60%. Measured in gold, the markets have done horribly and the economy has been in a recession for a long time.
I'm not bullish about U.S. stocks, but everything is so bad on a global basis that they might do better on a relative basis. That doesn't mean they go up, but the U.S. market might go down less than China, India, Vietnam and some of the other markets that are in cuckoo land. These markets have gone up because people believe in decoupling. Economically we could see a decoupling, whereby the U.S. is in a recession and China still grows by 5% or 10%."
"The market will rally this year, but the first half will be sluggish. Real GDP will grow 1.5%, with monetary stimulus and maybe fiscal stimulus. The economy will do better in the second half, and equity investors will start looking to '09 earnings. Many credit problems will be behind us. The market won't be a runaway freight train, but it's conceivable the S&P 500 will return 5% to 10%, with dividends reinvested.
Small- and mid-cap value stocks peaked June 4 and are down 21%-22% since. It has been a true bear market. I don't know if these stocks will outperform large-caps this year, but they'll move in lockstep. Also, for the first time in a long time, you can buy good-quality large-caps for 15, 16, 17 times earnings -- companies with sustainable growth and high returns on equity."
"As for the market, it will be up around 5% by year end. Last year saw $4.5 trillion of mergers and acquisitions, up from about $3.7 trillion the year before. This year, in addition to strategic buyers, sovereign wealth funds and SPACs, or special-purpose acquisition companies, LBOs will come back in the second half as bridge loans are working through the pipeline. The deals in this cycle will be a lot smarter, and more will be financed. M&A, spinoffs and liquidations all will contribute to that 5%-plus gain."
"Investors are capitulating now. The market is terrible again today. [The Dow had a rough session Monday, but closed up 27 points, to 12,827.] The market could decline 10% or 15% quickly from year-end levels. You'll be able to discount the end of the mortgage mess quickly; it will be clear as soon as some of the large banks start taking additional write-offs. The first half is going to be awful. Can the second half recover enough so that the market is down 5% for the year? Stocks will fall 10%-15% in the first half, and then rally 10%."
"It will be one hell of a recession.
Only home mortgages have blown up. There are problems in auto loans, student loans, leveraged-buyout and junk-bond loans. Wherever people were lending, they were lending stupidly. Delinquencies have risen across the board, but defaults haven't come yet. That process lies ahead.
I'm having a hard time believing this. You all say we're having a recession, yet the stock market will be up.
The only way we might avoid a bear market is if the Fed keeps printing money. That's why you ought to have a big position in gold, which should do even better this year."
Turning to politics, it looks like intrade is predicting the Republican candidate based on expected primary defeats for Romney in Michigan, Rudy in FL and Huck in all of the above. The process of elimination leaves the last man standing to be the guy with the worst speech of the night last Tuesday and Republican right nightmare John McCain.
Dems, still hard to predict with Hillary and Obama still expected to split primaries in Florida, Nevada, Michigan and South Carolina. The winner probably to be declared on Super Tuesday February 5.