2011 Bespoke Roundtable

I want to thank the crew at Bespoke for inviting me to join them again for their annual roundtable. Here’s the Q&A I did for the 2011 Bespoke Roundtable:

1) Looking back on 2010, what were your best and worst calls?

 

My worst call was easy.  In April, I said that Netflix was “the absolute worst stock to buy.” The stock more than doubled since then.  I also got an email from the CEO informing me that I had misspelled the name of the stock.  I will never again say that it’s NetFlix.

 

My best call has been Jos. A Bank Clothiers (JOSB).  Even after the recent tumble, it’s up more than 44% YTD.

 

2) What surprised you the most and least about financial markets in 2010?

 

I didn’t think the profit margin expansion story would be as strong as it’s been.  Sales growth hasn’t been nearly as impressive as earnings growth.

 

I was least surprised (and I mentioned this in last year’s roundtable) by the return of dividends.

 

3) What is the one thing that you think has contributed the most to the market rally we’ve seen off the March 2009 lows?

 

Earnings growth

 

4) What will be the biggest surprise of 2011?

 

I think the Fed will start to tighten sooner than most people expect.  Not a lot, but some. We’re still a long way from inflation being a problem, but there won’t always be the need for dirt-cheap money.

 

5) How long will the current bull market continue?

 

Can’t say yet, but stocks are still the place to be.

 

6) What are the various indicators that you follow closely telling you right now about where the stock market is headed in the near term (next couple of months)?

 

The yield curve and earnings forecasts.  The wider the curve, the better it is for stocks.  Wall Street loves cheap money.  Also, Wall Street is fairly optimistic on earnings growth for 2011. Even at 15 times earnings, the S&P 500 can hit 1500 before the end of 2011. 

 

7) Many of you noted that cloud computing would be a popular area of the market in 2010, which turned out to be correct.  What areas of the market or themes will gain more popularity in 2011?

 

N/A

 

8) What do you believe is the contrarian call on equities right now?  The economy?  Is investor sentiment currently misplaced?

 

It’s hard for me to say since I don’t know what the consensus is.  I will say that it’s very likely that volatility will continue to fall.  The VIX may even drop below 13 soon.

 

9) There has been a lot of commentary about the US entering into a “lost decade” similar to Japan in the 90s.  What is your take on this?

 

Yep, our lost decade has already passed.  It’s over.  Technically, our lost decade was one day short of nine years.  The Nasdaq peaked on March 10, 2000.  The market bottomed on March 9, 2009.

 

10) In what ways have you had to change your investment strategies over the past couple of years? 

 

I’ve gotten much more open to dividends.  I also strongly prefer companies that give guidance to those that do not.

 

11) What sectors do you believe will perform the best and worst in 2011?

 

N/A

 

12) Financials have been lagging the market for much of 2010.  Do you expect this to continue into 2011?  Can the market rally without the Financials?

 

If you’re looking to start a bank, this is about the best time you could choose.  I think financials will do well.  At least the better ones.  You can also expect to see major dividend increases from a lot of financials.  Many cut their pay to the bone.

 

13) What’s in store for the US economy in 2011?

 

Decent growth, around 4%, but we need that to last for a few years to get back to normal.

 

14) The consensus seems to think that the employment picture will get better in 2011, albeit slowly.  Do you agree or disagree with this call?

 

I agree, but I fear there may be a new “floor” to unemployment of 7% or 8%.

 

15) What are the biggest problems that could emerge in the coming year that could derail the recovery, and how likely are they to occur? 

 

Continued problems in the European periphery.  Any country that’s an island or a near-island is having trouble and that’s putting pressure on the core.  I’m also keeping an eye on China.  The yuan situation is simply unsustainable.

 

16) Are Ben Bernanke and the Fed helping or hurting the recovery?

 

The Fed’s policies are helping as much as they can. The problem is that more of our problems are outside what monetary policy can do.  The higher unemployment is structural.  We have X number of workers and an economy designed to employ 0.9X.

 

17) When will the Fed begin to raise rates, and will this be too early, late, or just about right?  (We asked this question last year as well, and rates have yet to change!)

 

That’s the 64,000 yuan question and it’s hard to say right now.  It’s really a moving target.  I still think that a modest Fed tightening is closer than most people realize.  I also suspect that there’s growing dissention inside the Fed.

 

18) After a bounce off the lows, home prices and sales have begun to dip again.  What is the reason for this and what’s in store for real estate in 2011?

 

There are simply way too many homes and way too many foreclosures.  That’s the good part of a post-bubble.  What’s also happening is that mortgage rates are on the rise.  I think we’re in for a few years of flat to sluggish growth for home values.

 

19) Will the Dollar (US Dollar Index) be up or down in 2011 and why?  Is there a serious threat to the Dollar as the world’s reserve currency?

 

The people waiting for the demise of the dollar are starting to remind me of Linus waiting for the Great Pumpkin.  Believe as they might, it just ain’t happening.

 

I expect some weakness for the dollar since that’s in everyone’s interest right now.

 

As to the dollar’s supremacy—there’s zero threat to that.

 

20) What are your current thoughts on gold – bubble, just the beginning, or fairly valued?

 

Gold is fairly valued now.  As long as rates stay low, gold will do well.  However, once the Fed starts to end the free money party, gold will get hammered.  High real rates are like Krypton for gold (I think I’m mixing my metaphors).

 

21) Oil doesn’t get nearly the attention it got back in 2006-2008, and it seems to be losing steam as an asset class that investors want to be in even though it has slightly outperformed stocks in 2010.  What is your take on oil as an asset class in 2011?

 

N/A

 

22) Which alternative energy sources do you expect to gain the most market share over the next decade, and what are some of the best ways to invest in these areas?

 

N/A

 

23) What is your take on the automobile sector in both the US and abroad?  Will the new GM stock be up or down in 2011?  What is your favorite auto play?

 

GM actually sells more cars to China today than it does in the United States.  Honestly, I don’t expect much from GM.  Another recession, even a mild one, could push them under again. But the turnaround at Ford is amazing.  I’ve already called Ford my “stock of the decade” (it’s never too early to spot a trend).

 

24) How will the new Congress impact the stock market and the economy in 2011?

 

I don’t know yet, but I doubt it will be good.  For investors, the two major issues to watch are dividend taxes and repatriation of foreign profits.

 

25) What is your take on the political environment in the country right now and what changes, if any, need to occur to make it better?  Will politics play a larger or smaller role in the year ahead?

 

N/A

 

26) Is the country finally serious about the deficit problem and ready to take steps to reduce it, or are we just seeing more posturing?

 

Many Americans are serious about the issue but they’re not a majority.  I have a contrarian take about our national debt.  Since it freaks people out, it’s therefore not a long-term threat.

 

27) What are the biggest global threats to the stock market right now, and how much of a threat are they?

 

The North Koreans are the biggest threat since we don’t know what we don’t know.  They have the bomb and their leaders are nuts.

 

28) Which countries/regions are you the most bullish or bearish on at the moment?

 

N/A

 

29) China’s stock market has underperformed most of the world in 2010.  Will we see outperformance or underperformance from China in 2011?  How do you expect other emerging markets to perform in 2011?

 

N/A

 

30) Will the following be up or down (positive or negative) in 2011?  Where noted, what are your 2011 year-end price targets?  The price targets are meant to obtain a “wisdom of crowds” consensus number from all Roundtable participants.

 

-S&P 500 (up or down and year-end price target) N/A

-Long-Term US Treasuries (up or down) N/A

-Corporate Bonds (up or down) N/A

-Junk Bonds (up or down) N/A

-Gold (up or down and year-end price target) N/A

-Oil (up or down and year-end price target) N/A

-Dollar (up or down) N/A

-Average US Home Prices (up or down) N/A

-China’s stock market (up or down) N/A

 

31) Please provide readers with any stocks that you really like right now and for 2011 and beyond (and why).

 

Check my Buy List for full details.

 

32) As one of the most popular financial content providers out there, what advice would you give someone looking to get into this arena, and how has the industry changed since you started doing what you do?  Where do you see our industry going with the ever-changing way that individuals and investors get their information?

 

Simply focus on writing good stuff.  Don’t worry about building an audience.  On the net, people will find you.

 

All the major media outfits now have blogs.  When I started in 2005, none of them did.

 

I think we’re going to see more specialized financial/economic blogs.  More sites will specialize in areas like tech or finance or commodities. 

 

33) What are the websites, magazines, newspapers, books, apps that you use the most and would recommend others to use?

 

StockTwits is a great resource, and, of course, Bespoke.  I probably read Bloomberg the most. It’s a great service.

 

34) Do you have any other advice that you would like to share with readers heading into next year?

 

Don’t confuse cynicism with wisdom.

Here are the responses for the other participants.

A Dash of Insight – 2011 Bespoke Roundtable Q&A

Financial Armageddon – 2011 Bespoke Roundtable Q&A

Footnoted.org – 2011 Bespoke Roundtable Q&A

Paul Kedrosky’s Infectious Greed – 2011 Bespoke Roundtable Q&A

Investment Postcards – 2011 Bespoke Roundtable Q&A

The Kirk Report – 2011 Bespoke Roundtable Q&A

Random Roger – 2011 Bespoke Roundtable Q&A

The Reformed Broker – 2011 Bespoke Roundtable Q&A

VIX and More – 2011 Bespoke Roundtable Q&A

Wall St. Cheat Sheet – 2011 Bespoke Roundtable Q&A

World Beta – 2011 Bespoke Roundtable Q&A

Posted by Eddy Elfenbein on December 20th, 2010 at 10:44 am

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.