A highly rated economist for 33 years running, Ed Hyman, of ISI Group, was interviewed by Consuelo Mack of Wealthtrack. Hyman said 2012 was better than it felt. He said we should remember nearly everyone was traumatized by what occurred in 2008-2009. “It left a psychological mark on all of us,” Hyman added.
Hyman said central bankers were impacted by the financial crisis, as well, and there were something like 250 easing moves around the world in 2012. “That, probably as much as anything, helped financial markets do better,” Hyman added, and the economy did ok with employment increasing by 150,000 per month.
Hyman said the return on cash is basically zero, which is more or less true everywhere. The combination of the economy doing better and monetary policy “set at max” with zero returns from safe assets explains why the markets have done well.
Dennis Stattman, portfolio manager, BlackRock Global Allocation Fund, was also on hand with Ms. Mack. He said investors didn’t feel great about the performance of markets in 2012 because of the nature of the rolling crises.
When asked by Mack what they expect in the coming year, Hyman said he foresees a similar backdrop as existed a year ago for the markets, with investors exhibiting a deep caution regarding what lies ahead. He explained why he feels the market is still “climbing a wall of worry.”
Stattman said he sees opportunity, but evident risk, especially for bond investors who will have difficulty meeting their return objectives. He sees stock market valuations around the world at a reasonable level with dividend yields frequently above the associated sovereign bond yields. Therefore, investors have been crossing over from the bond market to the stock market. However, Stattman noted there has already been an enormous pickup in earnings and with profit margins near peak levels, investors need to worry about the level of profitability going forward. Stattman concluded he likes stocks over bonds.
The interview continued with Ed Hyman elaborating on the positive economic factors, the risks involving the debt ceiling debate, his expectation for a good first quarter for the stock market, and his favorite stock for the coming year; Caterpillar (CAT). Stattman discussed the importance of the housing market and the associated psychology surrounding it and how it becomes a tailwind in the next several years, and his favorite stock which exhibits value, quality, growth and has a 6% dividend yield; Total SA ADR (TOT).
A year ago, Ms. Mack interviewed Ed Hyman about his outlook for 2012 which was correctly bullish and one of his stock picks, Home Depot (HD), which had a very good year (up 47%) [link].