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My Gut Feeling For 2012

After a year that was accentuated or shall I say pockmarked with a continual flow of exogenous events such as natural disasters, sovereign debt and budgetary crises and political changes in the Arab world which resulted in a flat S&P 500 (SPX) index, we head into a fresh new year with a clean slate.

2012 as all years will deliver its highs and lows, surprises, intrigue and will humble investors whether professional or do-it-yourself. I am not going to try to be outrageous but rather will be practical and analytic as I propose to you my investment Gut Feeling for 2012:

  1. The SPX will increase earnings by 8% to between $102 and $103. The SPX earnings multiple of 13.24 is one of the lowest in decades. I would assign a 30% chance that the multiple will remain unchanged, yielding a 1,357 price target. There is a 20% likelihood that the multiple could contract further to 12.5, corresponding to a price target of 1,281 for the index. There is a 50% probability that the earnings multiple will expand to 14, resulting in a year end price target of 1,435. So, the range of my year end expectations is 1,281 to 1,435 with a probability weighted target of 1,381, nearly a 10% rise.
  2. This year is a Presidential Election year. On average, since 1950 the SPX has increased by 6.10% in a Presidential Election year. The last presidential election year yielded a worst ever decline of 38.49%. I do not expect a repeat of 2008. The first and third quarters in this year of the election cycle gain less than 1% on average while the second and fourth quarters gain a little of 2% on average. There is no doubt that the election will be front and center in the media. The election will be close and a record amount of money will be spent which will help the bottom lines of both traditional media and internet advertising companies. The swing votes will come from the Jewish vote in Florida, New Jersey and New York along with the Hispanic votes in Florida, Arizona, New York and Texas. Gov. Chris Christie plays a big role in the election as does Mayor Mike Bloomberg who turns down Romney’s offer as a running mate but unlike 2008 will support a candidate for President. That support will fall to Romney.  I believe that President Obama faced with poor polls will shake up his ticket and replace Joe Biden with Hillary Clinton as his Vice Presidential running mate. This is a rumor that has been making the rounds for well over a year now. However, the Republican nominee, Mitt Romney will see this move by Obama coming and will select a Latino running mate. It could be Marco Rubio (Florida) but do not rule out Susana Martinez (New Mexico), either of the Diaz-Balart Brothers (Florida), or Bill Flores (Texas) as Rubio might be seen as too young. The Romney ticket receives 292 Electoral College votes in a close election.
  3. The mess in Europe will be resolved and the European bourses will have a 2009-like reversal as did the US markets. This will not occur until midyear.
  4. American companies with rich balance sheets and appreciated US dollars will go on a buying spree in Europe. It will start with the more staid sectors such as: food, personal care, staples and consumer products companies. From there it will expand to tech and industrials. There will be so sacred cows as the European Commission on Competition will act from a position of prudence rather than one of parochialism.
  5. After adding about 1.6 million non-farm payrolls in the United States in 2011, another 2.5 million jobs will be added in 2012. Domestic employers will no longer be able to squeeze additional productivity gains and end user demand will require inventory builds. The jobless rate moves toward 8% all year but does not get close to that figure until after the election. GDP expands more than economists believe.
  6. Cloud Computing will be all the rage but will deliver the same disappointments as did prior promising technologies such as solar energy, Nano tech and VOIP. These cloud computing stocks will surge and then crater, although some have already begun to do so such as Saleforce.com (CRM).  The cloud companies won’t be alone. A Facebook IPO will be the death knell for the entire social networking stock complex, Facebook included.
  7. The Summer Olympics in London will reestablish the United Kingdom’s economic supremacy in Europe. Think about investing British in 2012 and look at the iShares UK (EWU). The AT&T (T) deal for T-Mobile might be dead but Vodafone (VOD) has deep pockets and could make a play for the carrier.
  8. The exchange traded fund marketplace succumbs to overcrowding and contraction will take place, albeit in an orderly fashion. A major hedge fund closes, most likely Paulson & Co. Mutual funds voluntarily and publically cut back on 12b-1 fees to attract assets from ETFs. Turnkey Asset Management Programs or TAMPS go mainstream. I have begun to explore a TAMP strategy myself for LakeView Asset Management, LLC and will research forming a potential TAMP product for WSAS. Imagine if you can invest along with your favorite All-Stars individually or in the aggregate for what you pay a mutual fund?
  9. Natural gas and the Keystone Pipeline become major election issues as a shovel ready jobs project. I own Canadian Oil Sands (COSWF) and will add to my positions given an opportunity.
  10.  One or more of the following do not survive 2012 as an independent public company: Research in Motion (RIMM), Nokia (NOK), Sprint Nextel (S), and/or Cablevision (CVC). However, the stocks may fall first before getting saved by a suitor.

Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long COSWF stock — although positions can change at any time.

You can email Scott at scottallstars@gmail.com

Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant and agricultural stocks. You can subscribe at www.restaurantstox.com 

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  1. [...] December 28, 2012 By Scott Rothbort Leave a Comment // On January 3, 2012 I proposed my Gut Feeling for 2012 right here on Wall Street All-Stars. Now it is time to revisit those expectations and grade [...]

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