k********8
发帖数: 7948 | 1 http://www.blackstone.com/the-firm/market-commentary/blog-detai
01/04/2012
The Surprises of 2012
All this began to change in October. Data for the U.S. economy began to
improve and the equity market moved back to where it had started the year.
European leaders, recognizing the urgent need for a solution to the
sovereign debt crisis, began to talk of a treaty change that would move the
continent towards a fiscal union. By year-end the 2011 Surprises looked
much better. A blogger, analyzing each of them and giving me partial credit
for a few, came up with a score of 50%, which is consistent with my long-
term average. Other reviewers were not so generous. My definition of a
surprise is a market-influencing event that the average investor would
assign only a one-out-of-three chance of taking place during the year, but
that I believe is “probable,” i.e., that the event has a better than 50%
chance of happening. Here is my review.
The first surprise was that the U.S. economy would have a strong year with
real growth of 5%. It now appears that we will struggle to show growth in
excess of 2%. I did think that the unemployment rate would drop below 9% and
it was 8.6% in November. While capital spending, exports and retail sales
were firm, I underestimated the degree of inventory liquidation taking place
and how difficult it would be to have a strong recovery without housing
playing a positive role.
The second surprise was that the 10-year U.S. Treasury yield would rise to 5
%. I thought there would be a linkage between large Federal deficits and
the reluctance of foreign investors to buy U.S. credit instruments, but I
underestimated the amount of risk aversion around the world. With Europe in
turmoil and Japanese yields even lower than those of U.S. Treasurys, the 10
-year notes dropped below a 2% return. Ironically, yields on U.S.
government debt declined even after a credit agency downgrade in August.
In my third surprise I thought the U.S. equity market would have a good year
, reaching 1500 on the Standard & Poor's 500. My reasoning was that the
index almost invariably sold at 15 times the moving 12-month operating
earnings level at some point during the year and I expected S&P 500 earnings
to be $95 in 2011 and $105 in 2012. Earnings reported so far for 2011 have
exceeded analysts’ expectations. The disappointing performance of the
equity markets this summer was caused by concerns that a possible recession
was upon us. Real growth below 2% in the first half alarmed investors, who
were also concerned that the sovereign debt crisis in Europe and resultant
austerity measures there would push the continent into recession and that
this weakness would spill over to the United States as it had in most
instances in the past. While the U.S. equity market was able to recover its
summer losses in the fall, it is still a long way from my surprise target.
Finally, in my fourth surprise I got something right. I thought investors
everywhere would begin to believe that a combination of rapid money supply
growth and huge debt burdens would cause the major developed countries to
print money and debase their currencies. While this might not be
immediately inflationary, it would persuade many investors to diversify a
portion of their assets into something “real.” While gold’s price may be
a fantasy to some, it has represented a store of value for 4,000 years, and
I thought buying by individuals and trade-surplus regions like China and the
Middle East would drive up the price. During the year, gold substantially
exceeded my target of $1,600 (it got to $1,922), but is below that level at
the year-end.
At the beginning of 2011 China had two problems: it was growing too fast and
inflation was rising to disturbing levels. In my fifth surprise I thought
the Chinese would allow the renminbi to appreciate, which would have the
effect of slowing its economy and reducing inflationary pressures. The
currency did appreciate during the year from 6.7 to 6.4 to the dollar, or
about 5%. This was less than I had hoped for but consistent with my
directional expectation. China began letting its currency rise in May 2010.
Officials in Washington still view the renminbi as undervalued and believe
the Chinese are holding it at an unrealistically low level, but their
policy is changing, and I believe it would be a mistake to impose punitive
tariffs on goods imported from China. The Chinese are the largest foreign
holders of U.S. Treasurys, and where I went to business school, they taught
us not to make our creditors angry.
In the sixth surprise I believed the standard of living would continue to
rise in the developing world and that people in those countries would
improve their diets. This means eating more meat and poultry with a
resultant rising demand for feed grains. I also thought that the global
warming phenomenon would create more variable weather conditions and the
result of this would be more crop failures than crop bonanzas. These
considerations led me to the conclusion that the prices of corn, wheat and
soybeans would rise. While there was a commodity rally in the spring, all
of these commodities were lower at year-end.
Although housing construction remains a key drag on the U.S. economy, in the
seventh surprise I expected signs of a bottoming process in 2011. I think
that did happen. The data are erratic, but the days of sharp declines in
house prices seem to be over. Housing starts also have a better tone. With
more than three million homes for sale, we are unlikely to see any
significant strength in this area of the economy any time soon, but at least
the worst seems to be over.
During last spring all commodities were surging in price and oil was no
exception. My eighth surprise was that crude would reach $115 per barrel
during the year, and it did. My analysis showed that demand from the
developing world would offset conservation elsewhere. In addition I
observed that the depletion of the major producing wells in the Middle East
and the Americas was only matched by new discoveries, so worldwide
production had proven hard to increase. The price of crude has declined
since the peak, along with other commodities, but still remains above where
it was at the beginning of 2011.
Although President Obama did not withdraw all American troops from
Afghanistan at the end of 2011 as I speculated in my ninth surprise, the
political and military situation in that country remains problematic. The
past decade has taught us that creating a democracy in an historically
tribal country is an idealistic notion. I think the administration has lost
confidence in Afghanistan’s leader, Hamid Karzai, and is disturbed by the
continued lack of stability, the high degree of corruption and the sacrifice
of American lives there. I believe our current strategy is to disengage as
soon as possible.
The tenth surprise may have been the most prescient. Angela Merkel had been
somewhat ambivalent about the role of Germany in the European sovereign
debt crisis during 2010. I believed, however, that she would step up and
become the leader of a plan to maintain the European Union and the euro as
its currency, and she has. I was less convinced that Europe would move
toward a fiscal union, which would represent a long-term solution, but the
odds of that have improved also. The crisis is hardly solved; rather it
seems to be a work-in-process headed toward a possibly positive outcome.
So there is a review of last year. Now for The Ten Surprises of 2012. As I
have in the past, I go through a long process of developing The Surprises
over several months. I solicit the views of many people, including my Third
Thursday discussion group of former Wall Street research directors; Gideon
Rose and Jonathan Tepperman at Foreign Affairs (a publication of the Council
on Foreign Relations); Tom Bailey, the founder of the Janus funds; George
Soros; and numerous friends and former colleagues. In the end, The
Surprises are mine and, good or bad, I take responsibility for them.
The Surprises of 2012
1. The extraction of oil and gas from shale and rock begins to be a game
changer. The price of oil drifts back to $85 a barrel and the United States
becomes less dependent on Middle East supply. Deposits in Poland, Ukraine
and elsewhere prove promising as well. Increased production from Libya and
Iraq and reduced demand resulting from the slowdown in world-wide economic
activity contribute to the price decline.
2. Earnings for American corporations continue to move higher, driving the
Standard & Poor’s 500 above 1400. Raw material prices continue soft and
business leaders successfully adjust to slower economic growth by using
technology to reduce the labor and logistical component of goods and
services sold; profit margins stay high.
3. The U.S. economy gets its second wind. Real growth exceeds 3% and the
unemployment rate drops below 8%. Recession fears and even “the new normal
” view of prolonged slow growth are called into question. Capital spending
, exports and the consumer drive the economy, overcoming fiscal drag. The
drop in the price of oil and the rise in the stock market improve both
consumer confidence and spending patterns.
4. The recovering economy and the declining unemployment rate help
President Obama convince the voters that he didn’t do such a bad job in his
first term after all. He is viewed as a good speaker but a poor leader who
is running against Mitt Romney, viewed as uninspired and whose positions on
many issues are unclear. Democrats take back the House of Representatives
but lose the Senate in an anti-incumbent wave.
5. Europe finally develops a broad plan to deal with its sovereign debt
problem and moves closer to fiscal cohesion. The European Central Bank, the
International Monetary Fund, the European Financial Stability Facility and
the European Union band together to keep all the countries within the Union
and to continue the euro as the continent’s currency. Greece has a major
restructuring of its debt; Spain and Ireland strengthen their finances
during the year, but Italy suffers a “voluntary” restructuring. A
meltdown of the banks is avoided, but imposed austerity causes Europe to
suffer a recession.
6. The computer replaces conventional armaments as the principal weapon of
terrorists and geopolitical adversaries. Eastern European and Asian
hackers invade the data banks of major international financial institutions,
causing temporary bank closures. An alarmed G-20 meets to address the
problem.
7. Concerned over rapid money supply growth in the developed world,
investors buy the currencies of countries that seem to be managing their
economies sensibly. Scandinavian currencies, the Australian and Singapore
dollar and the Korean won benefit.
8. Congress decides its dysfunctionality is harmful to both parties and
acts before the November election to deal with the failure of the Super
Committee to develop a program to reduce the U.S. budget deficit by $1.2
trillion over ten years. Both defense and Medicare are cut significantly;
subsidies for agriculture are reduced and tax deductions for oil, gas and
real estate partnerships are modified. Obama pledges to let some aspects of
the Bush tax cut program continue if he is reelected.
9. The Arab Spring finally overcomes Bashar al-Assad and his family’s
rule over Syria ends. While Assad’s fall might have been inevitable, it
has important ripple effects throughout the region, weakening Hamas and
Hezbollah and further isolating Iran.
10. After two years of poor stock market performance while their economies
came through with high-single-digit real growth, the emerging markets
finally have a good year. Growth slows somewhat but favorable valuations
enable China, India and Brazil indexes to appreciate 15%–20%.
Below are several “also rans” which did not make the Ten Surprises list
because (a) I did not think they had a more than 50% probability of
happening and/or (b) they were not as important to investors as the ten I
ultimately chose.
Also Rans
11. Housing starts to pick up significantly. The strength in the economy
coupled with record affordability encourages the consumer to come back into
the market and make long-term commitments. The overhang of vacant homes
begins to be absorbed.
12. The yield on the 10-year U.S. Treasury note rises to 4% as China
continues to invest heavily in hard assets and raw materials and pulls back
from putting reserves into the bonds of developed nations.
13. After correcting sharply toward the end of 2011, gold rebounds to $1,
800 during the year. Accommodative monetary policies throughout the
developed world cause a renewed migration to hard assets by individual
investors and sovereign wealth funds. Silver benefits also, rising to $40.
14. Fiscal discipline at the state and local level allows the drop in
yields for municipal bonds to continue.
Next month I will discuss each of The Ten Surprises in more detail.
The webcast replays will be available beginning Monday, January 9, 2012. | l*********m
发帖数: 16971 | 2 good
the
credit
【在 k********8 的大作中提到】
: http://www.blackstone.com/the-firm/market-commentary/blog-detai
: 01/04/2012
: The Surprises of 2012
: All this began to change in October. Data for the U.S. economy began to
: improve and the equity market moved back to where it had started the year.
: European leaders, recognizing the urgent need for a solution to the
: sovereign debt crisis, began to talk of a treaty change that would move the
: continent towards a fiscal union. By year-end the 2011 Surprises looked
: much better. A blogger, analyzing each of them and giving me partial credit
: for a few, came up with a score of 50%, which is consistent with my long-
| d****7
发帖数: 2241 | 3 Thanks for sharing, kevin2088.
the
credit
【在 k********8 的大作中提到】
: http://www.blackstone.com/the-firm/market-commentary/blog-detai
: 01/04/2012
: The Surprises of 2012
: All this began to change in October. Data for the U.S. economy began to
: improve and the equity market moved back to where it had started the year.
: European leaders, recognizing the urgent need for a solution to the
: sovereign debt crisis, began to talk of a treaty change that would move the
: continent towards a fiscal union. By year-end the 2011 Surprises looked
: much better. A blogger, analyzing each of them and giving me partial credit
: for a few, came up with a score of 50%, which is consistent with my long-
| B****o
发帖数: 1393 | | c*******d
发帖数: 353 | 5 This guy is mentally retarded:
"The computer replaces conventional armaments as the principal weapon of
terrorists and geopolitical adversaries. Eastern European and Asian
hackers invade the data banks of major international financial institutions,
causing temporary bank closures. An alarmed G-20 meets to address the
problem. " |
|
