The Barron’s Roundtable sees trouble in Europe, but bargains in the U.S. and emerging markets. Marc Faber and Oscar Schafer share their 2012 investment picks.
Inflation. Deflation. Rehypothecation. Bad rap lyrics, or the poetry of finance? You can judge for yourself when you finish this first installment of Barron’s 2012 Roundtable, a verbal free-for-all that features high-falutin’ words, scary predictions and, yes, some sound advice on how to prosper in the year ahead.
After a year of political turmoil in the U.S. and debt-fueled chaos in Europe, it’s no wonder the 10 investment experts whom Barron’sassembled last Monday at the Harvard Club of New York were eager to dissect the big picture: how the U.S. should gets its house in order (the Senate, too), whether Greece will get booted from the euro, why central bankers might print money until the world’s ink supply runs dry, and, not least, when World War III will erupt (sooner than you think). To a one, these leading lights of Wall Street agreed that the world is a lot more dangerous than it was 10 or 20 or 30 years ago, when investors worried more about return on their capital than return of it.
That said, most Roundtable members also think pessimism equates with opportunity — in this case, the opportunity for gains in 2012 in relatively undervalued U.S. stocks. Fred Hickey, our resident expert in all things tech, even allowed that the 12-year bear market in technology shares could be ending, which really would be something to celebrate.
You’ll note a new face at this year’s Roundtable, that of Brian Rogers, chairman and chief investment officer of Baltimore money-management powerhouse T. Rowe Price. He takes the seat long occupied by Archie MacAllaster, who sadly passed away in 2011. Archie likely would be pleased to know that Brian too is an optimistic sort; he lives by several upbeat maxims, including that the world doesn’t end often. Try to remember that when you read the downbeat stuff in the pages that follow.
Marc Faber, who describes himself as the world’s No. 1 pessimist, is responsible for much, though not all, of it. He lives in Thailand but roams the globe, and starts off the stock-picking portion of this year’s Roundtable. Not surprisingly, perhaps, he remains a fan of emerging markets and thinks they will offer ample rewards to long-term investors, especially after their shellacking in 2011. Most of all, he believes in diversification — into equities and fixed income, real estate and gold — in a world where it is hard to fathom what policymakers might do next.
Hedge-fund manager Oscar Schafer, of New York’s O.S.S. Capital, also takes his star turn in this first of three Roundtable issues, making the case for a quartet of misunderstood companies with deceptively bright prospects for the new year. His attention to industry dynamics, capital-allocation strategies and valuations helps explain why he has not merely survived but thrived for decades on the Street.
Want the details? Please read on.
Barron’s: Let’s not dwell on last year’s mistakes, because all of you have taken vows to pick nothing but winners now. So we’ll start with the economy and interest rates, and even Europe, which called so much of the tune in 2011. Oscar, what’s ahead?
Schafer: The U.S. economy will continue to bumble along. The stock market will do all right if we avoid the “fat tail” outcomes of either hyperinflation or deflation that Bill Gross recently wrote about. Joe Rosenberg [chief investment strategist of Loews] said in a Barron’s interview last month that you can’t have good news and cheap stocks at the same time. We might have not-so-great news but cheap stocks, so I’m pretty optimistic.
Last year was strange, with the Standard & Poor’s 500 ending exactly where it started. Within the year there was huge volatility, however, which is hurtful to individual investors. Leveraged ETFs [exchange-traded funds], which deliver two or three times the market’s return, could be to blame for the huge upswings and downswings at the end of the day, as they need to rebalance their positions by buying or selling more stock before the close.
(9 pages long)
