Wednesday, December 21, 2011

10 Experts Pick the 10 Best Stocks for 2012 :AA, ARCO, CAT, COF, FSLR, HSY, MAKO, MCD, MSFT, STD, TKC, UPS, V

Wondering what the best stocks to buy for next year are? Well, look no further than the 10 Best Stocks for 2012.

This InvestorPlace feature lists 10 long-term investments from a group of money managers, market experts and financial journalists. The 10 Best Stocks for 2012 is meant to provide buy-and-hold picks you can purchase now and sit on for a year — ideally, winding up richer on the other side.

The buy list this year is a diverse group of stocks — from banks to technology, from emerging markets to Dow components, from old favorites to a stock that went public just a few months ago.

Throughout the year, the writers will regularly offer updates on the good, the bad and the unexpected as it relates to their best stock for 2012. We’ll find out in a year who had the best pick — but first, let’s examine each writer’s recommendation and what made them pick their stock as the best investment for the New Year:
Best Stock for 2012: Caterpillar

Caterpillar Inc. (NYSE:CAT)Investor and CBS MoneyWatch columnist Dan Burrows picked industrial giant Caterpillar (NYSE:CAT as his best stock for 2012.

His reasons? Dan says CAT stock was oversold during the summer volatility, has good fundamentals (including retail sales that grew 31% in October) and a bargain valuation with a forward price-to-earnings ratio of about 10.

“Wall Street’s mean (and median) price target for Caterpillar currently stands at $114.50, according to Thomson Reuters data. Add in the 2% yield on the dividend, and the stock offers an implied return of 28% in the next 12 months or so,” writes Dan. “Not too shabby for a company with a market cap of more than $58 billion.”

Read Dan’s complete recommendation on Caterpillar.
Best Stock for 2012: FedEx

FedEx FDXCNNMoney’s Paul R. La Monica said, “When I was asked to pick one stock to write about for InvestorPlace that I was confident would do well next year, I immediately started thinking of companies that should benefit from a steadily improving U.S. economy.”

At the end of his deliberation, Paul settled on FedEx (NYSE:FDX).

Don’t think this is just a play on a broad-based recovery, though. A discounted P/E ratio vs. rival UPS (NYSE:UPS[12]), a strong dividend history, recent rate increases and the lack of competition from a U.S. Postal Service in disarray[13] are all reasons to be bullish on FedEx.

“FedEx may not be flashy. But that’s kind of the point,” Paul writes. “In a market where volatility seems to be the new black, you could do a lot worse than a stable blue chip with steady earnings growth.”

Read Paul’s complete recommendation on FedEx.
Best Stock for 2012: Hershey

Hershey HSY Renowned trader, journalist and money manager Jon Markman has a sweet play for you in 2012: confectioner Hershey (NYSE:HSY).

Why this consumer stock? Well, because in the short-term Jon is decidedly bearish on just about all corners of the market. The euro zone debt crisis will continue to rock Europe and subsequently affect nations that export goods there or rely on plush government subsidies from the content.

In fact, Jon thinks that in the short term, “the simplest trades next year will likely be short iShares Europe (NYSE:IEV), short iShares Emerging Markets (NYSE:EEM) and short solar energy equipment producers like First Solar (NASDAQ:FSLR).”

But what does this mean for buy-and-hold investors? Simply put, get defensive with consumer staples stocks.

For those who think that chocolate is discretionary, Jon adds, “Well, try explaining to my daughter that chocolate isn’t a household staple.”

Read Jon’s complete recommendation on Hershey.
Best Stock for 2012: Capital One

Capital One Banks aren’t exactly super popular right now, so it might surprise you to see senior analyst Philip van Doorn of TheStreet picking Capital One Financial (NYSE:COF) as his best best for 2012.

But a closer look at the stock shows a lot to be bullish about, even as the rest of the financial sector melts down. Namely, strong fundamentals and a historically low valuation and book value.

Capital One also has two very important mergers in the works that will provide future growth beyond its generally well-run banking operations.

Philip is adamant that this is not just a dumpster dive, saying “the most important factor in Capital One’s strong performance this year is its outstanding earnings performance.” Compared with the big banks on Wall Street, COF is in a class of its own.

Read Philip’s complete recommendation on Capital One.
Best Stock for 2012: Mako Surgical

Mako Surgical David Gardner knows a thing or two about picking stocks. As co-founder of The Motley Fool, he is the brains behind the innovative Motley Fool CAPS rating system. And from his own research and what other investors are saying, David thinks he has a quite a pick for 2012 in Mako Surgical (NASDAQ:MAKO).

What makes Mako special? It’s an innovative medical device company that has revolutionized joint replacement. It’s not profitable yet, but the potential is huge, and stories of treatments and recovery are quite dramatic.

“It’s a long way from here to there, but for the speculative portion of your portfolio, MAKO could richly reward a little patience,” David writes.

If you don’t mind taking a little risk with your investments in 2012, consider this up-and-coming medical company.

Read Dave’s complete recommendation on Mako.
Best Stock for 2012: Microsoft

Blogger, author and founder of Stockpicker James Altucher joined a similar feature in the beginning of 2011, picking one stock to buy and hold all year. Back then, he picked Microsoft (NASDAQ:MSFT) — and his choice is the same a year later.

Similar to his previous write-up, the highlights of this year’s recommendation include:

8x earnings
Huge stock buybacks
Secret weapon: Skype replaces all smartphones within next five years

The idea of Skype taking over the mobile market is intriguing, considering voice represents so little of what we can do with our smartphones these days.

Read James’ complete recommendation on Microsoft.

Best Stock for 2012: Arcos Dorados

Arcos Dorados ARCO Josh Brown , adviser at Fusion Analytics and the author of The Reformed Broker blog, picked freshly minted Arcos Dorados (NYSE:ARCO ) as his top pick for 2012. ARCO is the largest McDonald’s (NYSE:MCD) franchisee in the world with more than 1,750 locations, largely in Latin America.

Arcos Dorados went public in April and has been up and down ever since — not a newsflash, considering the volatility of the market in general. But in the new year, Josh is expecting the stock to take off due to four factors:

Expanding consumer spending in Latin America
The ferocity of McDonald’s as a global brand
Growth within a defensive sector
The comeback potential for emerging-market equities in 2012

If you’re sick of trying to bargain hunt in struggling U.S. blue chips, and if you aren’t afraid of looking for growth abroad, ARCO could be your best bet in the new year.

Read Josh’s complete recommendation on ARCO.

Best Stock for 2012: Turkcell

Turkcell TKCMoney manager and stock picker Charles Sizemore, CFA, picked Visa (NYSE:V) as the single-best stock to buy and hold for all of 2011 — and thanks to market-trouncing returns of 40% year-to-date, his Visa pick[44] was the winner among 10 picks in our similar contest last year.

This year, Charles gets a purer play on emerging markets with telecom stock Turkcell Iletisim Hizmetleri AS (NYSE:TKC), a mobile phone operator more commonly known just as “Turkcell.”

Yes, there is unrest in the Middle East and in the euro zone right now. But as Charles writes, this means you can buy a great company at a fire-sale price.

“If you believe, as I do, that Turkey has one of the brightest futures of any country on the planet, then the crises on Turkey’s borders should be viewed as a phenomenal opportunity to buy shares of some of Turkey’s finest companies,” Charles writes. “And my choice for 2012 is Turkcell.”

Read Charles’ complete recommendation on Turkcell.
Best Stock for 2012: Alcoa

Alcoa AAAs with previous picks Caterpillar and FedEx, editor Jeff Reeves has leaned in favor of broad economic recovery with his recommendation of aluminum giant Alcoa (NYSE:AA).

Not only will growth in demand and higher prices result in bigger Alcoa profits, but overly negative sentiment has provided a great entry point, Jeff writes.

“Yes, big problems persist in the global economy, and aluminum demand and prices remain weak as a result,” he writes. “However, Alcoa hasn’t seen the $9 level since spring 2009. Are the macroeconomic fears really worse now than in 2009?”

In addition to valuation, Jeff likes Alcoa’s improving earnings, dividend potential, streamlined operations and hope for better margins in 2012.

Read Jeff’s complete recommendation on Alcoa.

Best Stock for 2012: Banco Santander

Banco Santander STD According to longtime stock picker, financial columnist and money manager Jim Jubak, your best bet for 2012 is a European bank. Really!

It’s an aggressive play, but Jim’s faith in Banco Santander (NYSE:STD) comes from a lot of number crunching — and the idea that as bad as things are over in the euro zone, they aren’t as bad as you think.

“The worry about European banks right now is that they can’t raise capital in the financial markets,” Jim writes. “During the past two quarters, Banco Santander has very clearly demonstrated that this bank doesn’t fit that profile of worries.”

It has attractive assets to sell if it has to, Jim says, and that’s on top of accessing credit markets just fine at the present — on top of $8 billion in free cash flow that shows a nice cushion for STD. The only catch is that Banco Santander holds almost $50 billion in Spanish government debt.

“If you think Spain will have to write off part of that debt, then Banco Santander sure isn’t the pick for you,” Jim writes. “If you think Spain is in better shape than Italy (or Greece), I think that in Banco Santander you’re looking at one of the best performers in 2012.”

Oil ETFs For the Long Term : DBO, SPY, USL, USO

With gold being the major growth story in the commodity world, oil's ascent to $144 per barrel in July of 2008 is a distant memory. However, since bottoming in February 2009, oil has regained some of it previous glory to currently sit around at $94.34. As the economy recovers, industries with start increasing their oil consumption, which will cause the price of oil to bubble up. Let's take a look at a few oil focused exchange-traded funds that could be good additions to your portfolio in the mean time.


Current Price

YTD % Return

Expense Ratio

Net Assets

U.S. Oil Fund ETF (ARCA:USO)





PowerShares DB Oil ETF (ARCA:DBO)





U.S. 12 Month Oil ETF (ARCA:USL)





Crude Focus
The PowerShares DB Oil ETF is currently up the most among the ETFs listed above in terms of returns since the beginning of the year. The DBO fund is composed of futures contracts on light sweet crude oil (West Texas Intermediate). DBO's 0.54% expense ratio is well above the 0.09% an investor would pay for the SPDRS S&P 500 Index Fund (NYSE:SPY), and it is the cheapest among its peers.

Crude Oil Plus
The U.S. Oil ETF also tracks the performance of light, sweet crude oil (WTI). In addition to holding futures contracts on light sweet crude oil, the USO fund may also invest in non-negotiated contracts with less liquidity than futures contracts and in taxable money market funds like the Goldman Sachs (NYSE:GS) FS Government Select. Leading the group of oil ETFs in terms of total assets, the USO fund also has the second lowest expense ratio of 0.78%.

A Dozen in the Other
The U.S. 12 Month Oil ETF tracks the performance of light, sweet crude oil (WTI) by calculating the daily movement of the average price of 12 futures contracts on crude oil.

Final Thoughts
Oil futures can be a volatile addition to any portfolio, so it's helpful to understand available ETF options that investors can choose from in order to capture the future upward movement of oil prices.


Richard Russell issues a super-bearish warning

Here are some deep thoughts from the great Richard Russell that will give the bears something to chew on for a while:

“I talked with my good friend, Joe Granville, over the weekend, and Joe is as bearish as I’ve ever seen or heard him, based on his OBV volume figures. This checks with my own work and studies.

While fundamentalists scour the news for indications of bullish news, the internals of the stock market continue to deteriorate. Even the action of the stock market is bearish as the market rallies on dull volume but declines on higher volume. Furthermore, rising breadth is narrow on rallies while declining breadth is broad when the market heads down.

I don’t know what more I can do or say to convinced subscribers that we are seeing the resumption of the bear market. This means that we should be OUT of all stocks. As for gold mining stocks, this is a personal choice. In due time, I expect gold to fully express itself with a huge upside blow-off. At that time I expect gold mining stocks to follow, but between now and then gold mining shares will probably be hit like every thing else by the fury of the bear market.

I should add that I am expecting this bear market to be far worse than most people expect or are prepared for. The fact is that I don’t believe that Americans expect any thing more than a temporary spate of difficult times, an annoying patch that should be over in a year or so. This is not what I am expecting or predicting.

Once the Dow breaks under 10,000, I believe that the analysts and the PUBLIC will become frightened and start to cut back on their buying. The newspapers will halt their bullish stance, and a great stillness will envelope that land. That stillness will be the result of shock as it dawns on Americans that they are seeing something far different than what they were expecting.

By the way, the Dow is now trading below its 200-day moving average, which stands at 11,938. The 50-day MA is bearishly below the 200-day MA (50-day is 11,811).

Spiritual — While in rehab and after my hip operation I had a lot of time to think. And I wondered why I was still alive. I had survived combat in World War II. I had survived two heart attacks and a stroke. I had survived a mastoid infection and operation. I had survived 50 years of riding motorcycles with one dangerous crash. I had survived two divorces. I have survived (and believe me it was survival) a severely autistic daughter who almost drove me mad. I have survived the years, since I will be 88 (the Chinese lucky number is 8).

So why, I ask myself, am I still here with my brain still functioning. My conclusion, arrived at after a lot of hard thinking, is that I’m supposed to be the messenger of changing times. I have 8,034 subscribers. What percentage of these ladies and gentlemen take me seriously and follow my advice, and what percentage of this group think I am a self-opinionated loonie I don’t know.

In other words, some body wants me to hang around. I know this based on e-mails and kind letters I have received from many subscribers. My advice over the years on gold and various bull and bear markets has resulted in changing some lives for the better. Which is a source of great satisfaction to me.

So that’s my story. I’m afraid it may sound prideful or mystical, but it is what I think, and when a man is 87 years old, he’s long past the need or the desire to lie.

Messenger of changing times sounds more like the messenger of doom….Let’s hope Richard Russell is wrong. Unfortunately, it’s hard to ignore a man with more market cycles under his belt than just about anyone around….

Are You Ready for "Peak Silver"?

We've all heard of peak oil -- the notion that, because there's a finite oil supply, production will one day begin to progressively diminish until there's no oil left. Well, a similar thing may be happening with silver, one of the world's most desired precious metals. That's why we at StreetAuthority think silver may be one of world's most coveted investments in the coming months and years.

Investors have been flocking to this metal for safety, just like gold. But that's not the only thing behind the high demand, which has been so great some experts say supplies could actually run out completely in only nine years. Industry has been gobbling silver up, too.

Think about it. Silver is a crucial component in so many items considered essential to modern life. It's in our flat panel TVs. It's in our iPhones. It's also in solar panels, the use of which has climbed by more than seven-fold in the past decade. All told, demand for silver in consumer electronics has more than doubled in the past 12 years. Total industrial demand is forecasted to rise to 666 million troy ounces per year by 2015, nearly a 40% jump from today's level of industrial use.

Whether peak silver will actually come to pass is anyone's guess. It's just too difficult to predict these sorts of events with any kind of accuracy. But one thing seems certain: at this point, there isn't enough silver to go around, and it doesn't look like there's going to be any time soon. The chart below provides an excellent illustration of this.

As the chart shows, total demand for silver -- the amount demanded by investors and industry -- has long outstripped what mining companies have been able to produce. This year, the estimated shortfall is about 120 million ounces, the difference between the 900 million ounces demanded and the 780 million ounces the mining industry will be able to supply. In other words, according to the chart, silver has been scarce for more than a decade, even though miners ramped up production 30% during that time.

Sounds pretty dire, doesn't it? We could be facing an ongoing silver shortage or maybe even a peak-silver situation that plays out within a decade. It all depends on how you look at it. For investors, it could mean a long and profitable bull market in silver, since shortages typically mean higher prices in the long-term.

After all, there's usually enough scrap silver -- silver typically reclaimed from objects such as old silverware, coins, jewelry and even lithographic ink and X-ray films -- to make up the shortfall. But this may not be the case for much longer. These traditional sources of scrap are rapidly depleting, and it's much harder to reclaim silver from newer sources like solar panels and electronic devices such as TVs, cell phones and computers. In the case of solar panels, a big obstacle is the extremely long wait until scrap can be reclaimed, since solar panels usually last at least two or three decades. There's a general lack of efficient methods to recover scrap silver from electronic devices, at least half of which end up in landfills anyway.

Risks to Consider: Like most precious metals, silver can exhibit extreme price volatility in the short-term.

Action to Take--> With this in mind, you may want to consider adding silver to your portfolio, particularly since the metal is only trading roughly $30 an ounce, about 40% off from its April levels. How high silver goes from here is anyone's guess, but experts such as Nathan Slaughter, Chief Investment Strategist of StreetAuthority's Scarcity & Real Wealth are convinced we're in the early stages of a bull market in silver.

There are several ways you can gain exposure to silver. You can buy shares of silver miners such as Silver Wheaton (Nasdaq: SLW) or Cour 'd Alene (NYSE: CDE). (We've talked about Silver Wheaton's particularly unique business model before.) You can even buy exchange-traded funds (ETFs) that physically store gold bullion for you.

It would be prudent to devote a significant portion of your silver holdings to physical silver. This way, you'd have some of the actual metal on hand in the event of a peak silver situation where mining stocks were no longer good investments due to a large decrease in silver production. That's why our favorite way to own silver right now is to own silver bullion or coins.

Jay Taylor: Turning Hard Times Into Good Times

12/20/2011: Making Money in a Deleveraging and Increasingly Totalitarian World

Silver Eagles Demand From the US Mint

5 Dogs of 2011 With Hope for Better in 2012

If every dog has its day, these stocks are overdue.

With the help of Capital IQ, we looked at the S&P 500′s 10 worst performers year-to-date as of Dec. 8. We then got rid of stocks where analysts saw no nope of a rebound. Then we cut the list further by keeping only those companies where analysts are forecasting a share price gain by at least 25% over the next year. That left us with five dogs of 2011 that could have their day in 2012.

Each company on our list has good reason for its stock’s precipitous decline this year, but there’s also reason to hope for a rebound in 2012. This group, like our recent picks of top performers of 2011 that may rise again in 2012, is surprisingly diverse — featuring financial service and cable-TV companies along with Netflix, which is ending 2011 as everyone’s favorite corporate punching bag.

Here’s the list, ranked in descending order of potential upside.

Bank of America (NYSE:BAC)
2011 decline: 58.1%
Recent trade: $5.34
Average one-year price target: $9.72
Potential upside: 82%

What went wrong? For the Charlotte, N.C.-based financial services firm, the answer is pretty much everything. It lost its ranking as the largest bank by assets to JPMorgan Chase (NYSE:JPM) and continued to be mired in the mortgage mess it created for itself through its 2008 acquisition of Countrywide. BofA swung to a profit in the third quarter largely due to an accounting gain and the pretax benefits it earned by selling its interest in a Chinese bank. In November, the company announced plans to slash 30,000 workers over the next few years in a bid to save $5 billion annually. Let’s not forget the uproar over the bank’s $5-a-month debit card fee that was so intense it got scrapped before it started.

Reasons for hope: CEO Brian Moynihan’s cost-cutting may start bearing fruit in 2012. BofA is also making progress in extricating itself from the mortgage mess. It modified more than 52,000 loans in the third quarter, up from 50,000 in the third quarter of 2010. Moreover, expectations won’t be tough to beat. “The bar is just so low for them right now, anybody could jump over it,” Paul Miller, analyst at FBR Capital Markets, recently told Reuters.

MEMC Electronic Materials (NYSE:WFR)
2011 decline: 62.7%
Recent trade: $3.82
Target price: $6.40
Potential upside: 67%

What went wrong? MEMC, a maker of silicon wafers, has had so much go wrong that it’s tough to figure where to start. For one thing, the solar market collapsed, as cash-strapped European governments that were big backers of the technology slashed their generous subsidies. In addition, solar projects were increasingly difficult to get funded. NEMC’s solar material business sells silicon wafers for solar systems, while its SunEdison business designs and finances such systems and sells their electricity. On Dec. 8, the company announced a trifecta of bad news: Layoffs of 20% of its staff, a reduction in capacity and a cut in its earnings outlook. As if that weren’t enough, Standard & Poor’s announced it had put the company’s already junk-rated debt on watch for a possible downgrade.

Reasons for hope: Solar power systems are priced so low that they may become economical for more people. Plus, MEMC is reducing its exposure to the solar materials business. Institutional investors are also loading up on the shares.

Monster Worldwide (NYSE:MWW)
2011 decline: 69.1%
Recent trade: $7.83
Target price: $12.81
Potential upside: 63%

What went wrong? Monster Worldwide has struggled along with the broader economy. Fewer jobs meant less need to advertise for them. Investors were further spooked by the New York company’s lackluster fourth-quarter guidance. Then there’s the relevance problem. Competition from LinkedIn (NYSE:LNKD) is expected to hurt the New York-based company. According to JPMorgan, LinkedIn’s Hiring Solutions business will reach $384 million in revenue next year, an increase from $243 million in 2011. Monster and rival CareerBuilder generate about $2 billion in annual revenue. Let’s not forget about other competitors such as Facebook and Dice Holdings.

Reasons for hope: With more than 150 million resum├ęs on file, Monster won’t disappear anytime soon. Business also is picking up. Third-quarter bookings rose 20% to $264 million, including an $8 million currency benefit. Revenue is expected to grow 17% to 18% this year. The company would seem to be a good candidate to be taken private given that its brand is so well known and that it makes money.

Cablevision Systems (NYSE:CVC)
2011 decline: 58.5%
Recent trade: $14.14
Target price: $21.48
Potential upside: 51.4%

What went wrong? In a nutshell, the Dolan family’s media empire is bleeding customers. About 19,000 video customers quit the Bethpage, N.Y., company in the third quarter. Though that’s less than analysts expected, it’s still pretty bad. Earnings in the quarter fell 65%. Cablevision faces stiff competition from Verizon Communications’ (NYSE:VZ) FiOS service among others in its home market. Todd Mitchell, a Brean Murray Carret & Co. analyst, told Bloomberg News that “Cablevision has the most difficult competitive situation of any of the major cable operators.”

Reasons for hope: Rumors have it that the Dolans wants to unload Cablevision on either Comcast (NASDAQ:CMCSA) or Time Warner Cable (NYSE:TWC). The family also may be interested in taking Cablevision private. It’s an attractive property. In the third quarter, it had high-speed data and voice line additions of 16,900 and 38,200, respectively. Adjusted operating cash flow was $539.3 million during that same time.

2011 decline: 60.5%
Recent trade: $72.11
Target price: $91
Potential upside: 28.2%

What went wrong? The blunders Netflix CEO Reed Hastings made in 2011 will be studied by generations of business students. First was the poorly executed 65% price hike for its popular streaming and DVDs-by-mail plan. Then came the equally botched idea to separate the separate the DVD service into a bizarrely named entity called Qwikster. Hastings killed Qwikster, but it was too late. About 800,000 customers quit the service between June and October. But as recently noted, the bad news keeps coming. “Recall that Netflix is in a dreadful bind,” the site noted. “The company is burning through cash at a time when content owners — many of which are developing streaming services of their own — are demanding exorbitant sums to share their shows.”

Reasons for hope: The rumor mill is in high gear that Verizon wants to buy Netflix. If that deal never happens, an acquisition by Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL) or Amazon all make sense as well. In any case, Hastings has to act fast or face having his customer base wither to nothing.

Bill Gross: Investment Outlook (December 2011)

Investment Outlook
December 2011

Family Feud
by William H. Gross, co-Chief, PIMCO

  • Investors should recognize that Euroland’s problems are global and secular in nature; it will be years before Euroland and developed nations in total can constructively escape from their straitjacket of debt.
  • Global growth will likely remain stunted, interest rates artificially low and investors continually disenchanted with returns that fail to match expectations.
  • Investors should consider risk assets in emerging economies, such as Brazil and Asia, and bonds in the strongest developed economies, where the steep yield curve may offer opportunities for capital gains and potentially higher total returns.

A 12-year-old coffee mug has a permanent place on the right corner of my office desk. Given to me by an Allianz executive to commemorate PIMCO’s marriage in 1999, it reads: “You can always tell a German but you can’t tell him much.”
It was hilarious then, but less so today given the events of the past several months, which have exposed a rather dysfunctional Euroland family. Still, my mug might now legitimately be joined by others that jointly bear the burden of dysfunctionality.

“Beware of Greeks bearing gifts” could be one; “Luck of the Irish” another; and how about a giant Italian five-letter “Scusi” to sum up the current predicament?
The fact is that Euroland’s fingers are pointing in all directions, each member believing they have done more than their fair share to resolve a crisis that appears intractable and never-ending. The world is telling them to come together; they’re telling each other the same; but as of now, it appears that you can’t tell any of them very much.

The investment message to be taken from this policy foodfight is that sovereign credit is a legitimate risk spread from now until the “twelfth of never.”
Standard & Poor’s shocked the world in August with its downgrade of the U.S. – one of the world’s cleanest dirty shirts – to double A plus. But what was once an emerging market phenomenon has long since infected developed economies as post-Lehman deleveraging and disappointing growth exposed balance sheet excesses of prior decades.
Portugal, Ireland, Iceland and Greece hit the headlines first, but “new normal” growth that was structurally as opposed to cyclically dominated exposed gaping holes in previously sacrosanct sovereign credits.

What has become obvious in the last few years is that debt-driven growth is a flawed business model when financial markets and society no longer have an appetite for it. In addition to initial conditions of debt to gross domestic product and related metrics, the ability of a sovereign to snatch more than its fair share of growth from an anorexic global economy has become the defining condition of creditworthiness – and very few nations are equal to the challenge.
It was in this “growth snatching” that the dysfunctional Euroland family was especially vulnerable. Work ethic and hourly working weeks aside, the Euroland clan has long been confined to the same monetary house. One rate, one policy fits all, whereas serial debt offenders such as the U.S., U.K. and numerous G-20 others have had the ability to print and “grow” their way out of it.

Beggar thy neighbor if necessary was the weapon of choice in the Depression, and it has conveniently kept highly indebted non-Euroland sovereigns with independent central banks afloat during the past few years as well. Depressed growth with more inflation, perhaps, but better than the alternative straitjacket in Euroland. As currently structured, Euroland’s worst offenders now find themselves at the feet of a Germanic European Central Bank that cannot be told to go all-in and to print as much and as quickly as America and its lookalikes.

Proposals from the German/French axis in the last few days have heartened risk markets under the assumption that fiscal union anchored by a smaller number of less debt-laden core countries will finally allow the ECB to cap yields in Italy and Spain and encourage private investors to once again reengage Euroland bond markets. To do so, the ECB would have to affirm its intent via language or stepped up daily purchases of peripheral debt on the order of five billion Euros or more. The next few days or weeks will shed more light on the possibility, but bondholders have imposed a “no trust zone” on policymaker flyovers recently. Any plan that involves an “all-in” commitment from the ECB will require a strong hand indeed.

On the fiscal side the EU’s solution has been to “clean up your act,” throw out the scoundrels and scofflaws (eight governments have fallen) and balance your budgets. Such a process, however, almost necessarily involves several years of recessionary growth and deflationary wage pressures on labor markets in the offending countries. While the freshly proposed 20-30% insurance scheme of the European Financial Stability Facility (EFSF) offers hope for the refunding of maturing debt, it is the deflationary, growth-stifling, labor/wage destroying aspect of the EU’s original currency construction that threatens a positive outcome over the long term. Without an ability to devalue their currency vs. global competitors or even – “Gott im Himmel” – Germany itself, peripheral countries may have survival to look forward to, but little else. Perhaps the Italians and Spaniards will put up with it, but maybe they won’t. The ultimate vote of the working men and women in these countries will always hang over the markets like a Damocles sword or perhaps a French/German guillotine. If the axe falls, then bond defaults may follow no matter what current policies may promise in the short term.

Investors and investment markets will likely be supported or even heartened by recent days’ policy proposals. The problem of Euroland is twofold however. First of all, they will remain a dysfunctional family no matter what the outcome. You can’t tell a German much, and while they can issue what appear to be constructive orders and solutions to the southern peripherals, there is little doubt that none of them will “like it very much.” Slow/negative growth and historically wide bond yield spreads will therefore likely continue. Globalized markets themselves will remain relatively dysfunctional, pointing towards high cash balances in presumably safe haven countries such as the United Kingdom, Canada and the United States. The U.S. dollar should stay relatively strong, ultimately affecting its own anemic growth rate in a downward direction.

Secondly, and perhaps more importantly however, investors should recognize that Euroland’s problems are global and secular in nature, reflecting worldwide delevering and growth dynamics that began in 2008. It will be years before Euroland, the United States, Japan and developed nations in total can constructively escape from their straitjacket of high debt and low growth. If so, then global growth will remain stunted, interest rates artificially low and the investor class continually disenchanted with returns that fail to match expectations. If you can get long-term returns of 5% from either stocks or bonds, you should consider yourself or your portfolio in the upper echelon of competitors.

To approach those numbers, risk assets in developing as opposed to developed economies should be emphasized. Consider Brazil with its agricultural breadbasket and its oil. Consider Asia with its underdeveloped consumer sector but be mindful of credit bubbles. In bond market space, the favorite strategy will be to locate the cleanest dirty shirts – the United States, Canada, United Kingdom and Australia at the moment – and focus on a consistent, “extended period of time” policy rate that allows two- to ten-year maturities to roll down a near perpetually steep yield curve to produce capital gains and total returns which exceed stingy, financially repressive coupons. A 1% five-year Treasury yield, for instance, produces a 2% return when held for 12 months under such conditions. Bond investors should also consider high as opposed to lower quality corporates as economic growth slows in 2012.

Because of Euroland’s family feud, because of too much global debt, because of deflationary policy solutions that are in some cases too little, in some cases ill conceived, and in many cases too late, financial markets will remain low returning and frequently frightening for months/years to come. I can imagine the coffee mugs for 2020 now: “Gesundheit!” from the Germans, “C’est la vie,” from the French and “Stiff Upper Lip,” from the British. In the United States I suppose it’ll still say, “Let’s go shopping,” although our wallets will be skinnier. You can always tell an American, you know, but you can’t tell ‘em to stop shopping. Likewise, investors should always be able to tell a delevering, growth constrictive global economy – but perhaps not. Dysfunction is not exclusive to politicians. Families, it seems, feud everywhere.


Jim Willie of is here to talk in his uniquely no-bull style about a 20-Lehmans ‘Flash Event’, the Libyan gold, the Comex shortage, the MF Global farce & Global Quantitative Easing to infinity… Buckle up. Also, read Jim Willie’s latest piece, Pathogenesis of Central Bank Ruin.

Target on Point to Deliver Big Gains : TGT

Target (NYSE:TGT) — This retail giant, which operates about 1,500 Target and SuperTarget general merchandise stores in the United States, is a victim of a slow economic recovery and its stock shows it.

TGT hit a high of over $60 in December 2010, but gapped lower and attempted to stabilize in January at its 200-day moving average. However, same-store sales have shown significant improvement throughout 2011, and the stock has responded by forming a saucer bottom.

In October, its 50-day moving average crossed above the 200-day creating a “golden cross” (a very bullish development). The stochastic is close to being oversold, and so the stock will most likely find solid support at the 200-day moving average just over $50.

TGT pays a dividend yield of 2.34%. The short-term technical trading target is $56, but a break through it could lead to a major move higher.

Trade of the Day - Target (NYSE:TGT)