Renowned money manager Rob Arnott, chairman of Research Affiliates, says that the US has not entered into a recovery period yet. He points to the percentage of Americans between the ages of 20 and 65 without jobs. At 75% it’s higher than when it was over two years ago when the recession ended. He also points to a housing sector still reeling from foreclosures and to the US’s huge debt. And he thinks companies will be prone to “big surprises on the downside” due to high expectations this year.
Yet, despite his decidedly bearish outlook on the US economy summed up in what he calls the eventual “3D hurricane” of soaring debt and deficits and aging demographics, he’s not nearly so bearish when it comes to the US stock markets. And the reason is “flight to safety.” A risky global economy will encourage investors to seek the safety of US equity and bond markets.
But if risk is gets too out of hand, then he expects US stocks will be shunned along with global equities.
In this respect Arnott is joining an increasingly crowded tent of Wall Street strategists who are predicting both “fat ends of the tail:” a benign scenario where US stocks could do well and a scarier scenario of Europe blowing up, banks defaulting, and inflation attacking recovering economies. From Canada’s Globe and Mail…
Even before the loony U.S. primary season gets into full swing, the American economy doesn’t appear to be co-operating with the leading Republican’s strategy. Numbers released last week show that U.S. payrolls climbed by 200,000 in December, double the total of the previous month and well above estimates. The unemployment rate dipped to 8.5 per cent, its best level in nearly three years. More important, average weekly earnings and hours worked increased, and manufacturing expanded at its best clip in half a year. Consumer confidence climbed to its highest level in five months, and a handful of large retailers reported better sales, improved margins and enough demand to prompt a bit of hiring.
Even David Rosenberg, Gluskin Sheff’s eminent resident bear, was moved to comment that the latest U.S. jobs report “seemed to offer up a tremendous amount of good cheer to end the year” – before proceeding to uncover some of the blemishes beneath the makeup.
The latest economic soundings prompted some commentators to wonder if U.S. investors are too focused on Europe’s dire debt crisis and the slowdown in emerging markets to embrace the good news in their own neighbourhood.
But after surveying the economic and financial landscape, renowned U.S. money manager Rob Arnott says investors ought to be even gloomier.
“This isn’t a recovery,” Mr. Arnott, chairman of Research Affiliates, said the other day from his perch in mostly sunny Newport Beach, Calif. “What we had was a catastrophic recession through mid-2009 and we have been sputtering … since then.”
He points to the embattled housing market, worsening job outlook and deepening fiscal woes to back his contention that investors should be getting out their umbrellas to deal with what he calls the eventual “3D hurricane” of soaring debt and deficits and aging demographics.
On the job front, new employment is creeping into the system at a slower pace than expansion of the working-age population. In fact, the proportion of Americans between the ages of 20 and 65 with jobs is lower today, at about 75 per cent, than when the recession supposedly ended two and a half years ago.
I have no doubt that this “on the one hand but on the other hand” prognostication reflects a genuine state of uncertainty on behalf of our institutional investors, but it also leaves retail investors without a clear direction.
I believe it’s going to be a tough year for companies, as they deal with slower-than-average growth in the US and China and a recession in Europe. One good way to dip into the market this year? Investing in the big dividend-paying companies that are hiking their cash payments to shareholders.
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