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Monday, January 10, 2011

Ed Hyman & Dennis Stattman's Outlook for 2011

Summary of Consuelo Mack's interview with Wall Street's long-time number one ranked economist, Ed Hyman of ISI Group, and BlackRock's star Global Asset Allocation Fund manager, Dennis Stattman. You can watch the full interview at the bottom of this summary.
State of the US Economy:
Ed Hyman:
The economy is not very healthy because we are doing quantitative easing.  About 3 months ago, it looked like the economy was going into a double dip. Since then, the economy is looking "much, much better."
Dennis Stattman:
Chronic problems will be with us for a long time. We have too much debt.  We are not producing enough in our economy compared to what we are consuming.  Harder to get employment going due to higher costs of employment.  But, compared to expectations of three or six months ago, the economy on the short-term is doing better.  The big problems will be there for years.
Ed Hyman's expectations
  • 3% Real GDP in 2011.  
  • 10-year Treasury at 4.0%
  • Fed Funds Rate of near zero percent for the full year.
6 quarters of 3% growth and unemployment last month was 9.8% so 3% is not enough to grow jobs. Thus believes the Fed and the president want 4% GDP growth to grow jobs.  Like Clinton, he believes Obama is doing his version of a move to the center to grow jobs and get reelected in 2012.
Dennis Stattman:  Believes the monetary policy is near the level of "desperate."  Spending has been very aggressive but little has been done to address the  production side of the economy.  Regulation and tax uncertainty is hurting small businesses.  Politicians will have to move to address this or they won't get reelected.
Ed Hyman: Believes focus will shift to 2012 with Q1-2011 GDP coming in at a "new high."
Dennis Stattman:   "Stocks in the US are quite reasonably priced."  Many US stocks benefiting from higher growth rates outside the US but they are selling at low PE ratios due to US troubles.  Blackrock's Global Allocation fund is at 36% of fund in US Equities, the highest exposure in a long time.  Fixed income exposure is lowest ever and thinks bond market is dangerous to investors.
Ed Hyman: Believes the US stock market "is going up."  Adding to Dennis`s picture, Ed believes the Fed introduced QE2 to increase the value of stocks, to drive investors into riskier assets, to increase confidence with higher stock prices and thus lead to increased hiring.  Ed agrees "completely" with Dennis on bonds and believes that the bond market (10-year yield) is heading towards 4.0%.  To go above that would be "epic."
On the US Dollar.
Dennis Stattman:  Has about a market weighting in the dollar or 60%.  Most investments are in dollar but that also means 40% are in non-dollar investments.   "I would be very nervous to be 100% US Dollar."
Ed Hyman: "Being neutral sounds like a reasonable position. "Agrees with Dennis and believes the emerging currencies like the Yuan will go up.  Not bullish or bearish on the dollar.
Dennis Stattman: Likes IBM (Charts & Quote).  Get a very solid growth investment with a 1.7% yield. Thinks IBM has a good "blueprint" to get earnings per share to $20 by 2015.
Ed Hyman:  "I would put my money in Dennis's fund."  The one stock that sticks out to him is Citigroup (C charts and Quote).  He likes emerging economies and Citicorp or Citigroup has done a better job than the other banks in the emerging markets.  He also believes Vikram Pandit is "an emerging markets person" and is a great leader.  If Citi gets over $5, then the stock can be bought by more institutional investors.  If I had to pick one stock, I'd pick that stock.

Disclosure:  I own both IBM and C

Since 12/31/98 "Kirk's Newsletter Explore Portfolio" is UP 212%  vs. the S&P500 UP only 25% vs. NASDAQ  UP a only 22%   (All through 12/31/10) 
In 2009, "Kirk's Newsletter Explore Portfolio" gained 33.5% vs. the DJIA up 1.8%

In 2010 YTD my "Explore Portfolio" gained 20.4%!!
vs. the DJIA up 13.8%
(the explore portfolio has 70% in equities and 30% in fixed income so the stocks are doing very, very well)

Kirk Lindstrom's Investment Letter Performance

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