The Big Picture Can Be Deceiving
03/30/2012 11:15 am EST
Any number of events could send the macro economy into another crisis in 2012, but investors can still find good plays on the individual scale, says Jon Markman, who shares a few examples.
Jon, what macro events do you see shaping the markets in 2012?
Well, you know, I think that 2012 is going to be a lot more like 2011 than people think. You know, coming into the beginning of this year, the markets have been up. Some of the emerging markets like Brazil are up 10% or 15%, and even Europe seems to have gotten its act together...but looks are very deceiving.
I think that the European Central Bank has decided to flood the market with money—which is its prerogative, something that I and many others did not expect it to do—but I think there is going to be a limit to what they are willing to support.
So I would expect that probably sometime in the second quarter, possibly in the middle of the second quarter, they are going to make a mistake. They are going to decide that they have done enough, and they are going to pull back. That’s the moment when I think we’re going to have another crisis in the market.
Now how about domestically? There is a lot of talk about the Fed saying interest rates would be ridiculously low through 2014. How will that have an impact?
Well, you know the Fed has said that it wants to keep rates at ultra-low levels until 2014, but privately Bernanke has told others that he doesn’t want to keep it that low that long. He would like to have an opportunity to raise rates sooner.
I think there is still a possibility that the market will be shocked by a quarter-point to half-point raise later this summer if things are looking better. I think that would be a mistake on his part, and that will also probably contribute to our usual summer decline or summer doldrums.
Because if investors, as you noted, are expecting these low interest rates because that’s what has been announced, it does seem that could have a very significant impact.
Well, that’s exactly right. He has raised expectations that there will be ultra-low rates until 2014. But if you look at the language, there is actually plenty of room for him to squirm out of it, and we all know that the history of economic policy in the United States.
Our monetary policy is that the fed tends to make mistakes and sometimes very large ones when least expected. So this idea that Bernanke is the master of the universe and has really got it all figured out is going to really be tarnished, I think, by mid year.
So given all this, what’s the best course of action for individual investors?
Well, I think that for individual investors, it’s always usually best not to pay too much attention to the big picture, because investing can be terrific on the smaller scale.
There are some terrific dividend-paying stocks in the energy master limited partnership space. These stocks will do well in terms of offering capital gains, but also offering large dividends along the way.
I am talking about companies like everybody knows: Enterprise Products (EPD), or Plains All American Pipeline (PAA), or Markwest Energy (MWE). Companies like that have done well for years, and will continue to do well both on a capital appreciation basis and in providing dividends.
Then, I think energy overall will do well this year, because the tensions in the Middle East are simmering right now and are likely to really explode—maybe not in a spectacular way, but in a way that’s enough to make people fear a constriction in the supply coming out of the Middle East. So I do think that energy stocks overall will do well this year.
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