Buoy 10

At the confluence of the mighty Columbia River and the Pacific Ocean is Buoy 10, a great spot for Salmon Fishing and getting sea sick. The absolute chop, current and waves caused by these two massive bodies of water cause quite a stir. In fact, it’s often people lose their lives trying to cross this bar or fish in the currents.

This is a little what it’s like navigating the treacherous capital markets these days. While it’s true the best opportunities to generate positive returns is to invest in somewhat uncertain times (please take note of the word “somewhat”). The chop is what you need to make returns but it doesn’t mean you won’t get sick.

That’s what it was like this last week. On one hand you had Goldman Sachs (the self proclaimed gold standard of investing) calling for 2.7% GDP growth and a 22% return for the S&P 500 in 2011. In fact, they called for massive opportunity in many asset classes and countries next year. Of special note Goldman became very bullish of financial stocks for the first time since 2008. These guys are really feeling the economic love. Below you can see a few of their predictions (http://read.bi/fzCk9J).

Japan

Current: 875 2011 End: 1000 Change: +14%

Asian Markets Ex Japan

Current: 449 2011 End: 580 Change: +29%

STXE 600

Current: 262 2011 End: 330 Change: +26%

S&P 500

Current: 1188 2011 End: 1450 Change: +22%

On the other hand you had a Friday jobs report that fell well short of expectations, adding only 39K jobs for November vs. an expected 100K jobs bumping the unemployment rate from 9.6% to 9.8%. What was particularly disturbing was the zero growth in wages (http://bit.ly/48PjbR).

While there is lots of conflicting data that creates these choppy seas, these two converse data points highlight the fact that we are in the middle of some very choppy seas. Buoy 10 never felt so good in comparison.

The critical point to keep in mind is the fact that markets trade on expectations for the future. Goldman’s analysis is clearly an expectation for the future. While the jobs data is a clear and ugly look at the very recent past. For Goldman’s analysis to see any hope of implementation we will need to see the end of 2011 and much of 2012 GDP growing in the 3%-plus range. My personal opinion is that is entirely possible.

A slight lift in our economy can create a significant lift in our markets as they have built in so much permanent negative information. Hopefully some smooth sailing ahead.

Unfortunately, we will have to work through some choppy waters as the churn from forward expectations and the reality of backward looking economic ugliness collide.

My Investment Themes:

• Luxury Goods with growing emerging market exposure
• Weak dollar opportunities - exporters
• Select technology - specifically business processing
• Media (Print that is adapting to on-line)
• Rare Earths (again see our Tweets on this)
• Emerging Markets Debt and Equity that is driven by US dollars finding better investment environments
• Segmentation of emerging markets rather than broad based emerging markets exposure
• Mega Cap US companies that are finding great margins with little top line growth, especially exporters
• Healthcare Assisted Living
• Germany
• Brazil Energy
• Brazil Telecom
• Financial Asset Managers/Hedge Funds
• High end retail

 

Tim Phillips, CEO