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Jan. 12, 2012, 12:01 a.m. EST
By Robert Powell, MarketWatch
BOSTON (MarketWatch) "” This time of year, you'll find no shortage of folks predicting what will happen in the financial markets. But you don't often find investment professionals who warn they can't predict the future and that if they do, they might be completely wrong.
Seems like those might be the realistic ones who are worth listening to.
"I have two predictions for 2012," said Cern Basher, chief investment officer of Madison Wealth Management. "First, the markets are unpredictable and I do not have a clue about what 2012 has in store other than the markets will be volatile and uncertainty rules the day. Second, 99% of all predictions will prove to be wrong and should not be given any credence, including mine!"
Those caveats aside here's what the investment pros are looking for in the coming year:
Vahan Janjigian, chief investment officer at Greenwich Wealth Management, expects the U.S. economy to pick up as the employment situation improves and the housing market stabilizes. "Of course, this bodes well for an Obama reelection," he said. Yes, nonfarm payrolls are still weak, but they are moving in the right direction, he said. What's more, Initial jobless claims are also showing signs of improvement.
As for housing, he noted that prices are stabilizing, sales contracts are up, and permits to build new homes are also up. "I don't expect a housing boom, but I do expect prices to stabilize and perhaps inch higher in certain markets," said Janjigian.
Janjigian isn't, however, looking at 2012 with rose-covered glasses. "One thing that continues to concern me is the employment participation rate, which remains extremely low," he said.
The good news though is that an improving economy should result in a better stock market than we had in 2011, he said. "Furthermore, because the Fed continues to keep interest rates low, investors are hungry for yield, which they are not getting from bonds, notes, or bills," he said. This should increase the demand for dividend-paying stocks."
But while there's hope for the U.S, Janjigian continues to worry about Europe. "I don't believe the euro zone will disintegrate, but I do believe there is a good chance that at least one country, Greece for example, drops out of the zone. I also think Europe as a whole will see a recession in 2012, but I do not expect a European recession to have a significant impact on the U.S. economy. "
And in general, Janjigian said, he's growing more concerned about political risks that could have a detrimental impact on worldwide economies. "For example, the possibility of a conflict with Iran has already driven up oil prices," he said. "I also worry about China. Chinese citizens appear to be more willing to take to the streets and air their grievances. China needs very strong growth to keep its population satisfied. If China is unable to sustain high rates of growth, the risk of unrest increases. However, I do not expect a slowdown in the Chinese economy to have a large impact on the U.S. economy."
Christopher Pavese, the chief investment officer at Broyhill Asset Management also has concerns about the global economy, the outlook for which is quickly deteriorating today. And, relative prices of fiat currencies essentially boils down to Keynes' "?ugly contest.' "During times of crisis, the most liquid asset will win every time," he wrote in a recent newsletter. "This means dollars today and even more so after Switzerland decided to peg the Swiss franc to the euro. There is one less safe haven in the world now. I think the market is going to be surprised by how high the dollar is going to trade against other fiat currencies, now that it has so little competition."
But dollar strength, combined with broad-based emerging market weakness would hit the industrial commodity complex pretty hard, Pavese wrote. "The marginal buyer of gold, on the other hand, has become less sensitive to moves in the dollar, resulting in lower correlations in price movements between the two with trust in global governments on the wane. Investors seeking protection from the proverbial printing press increasingly view the precious metal as the ultimate safe haven and store of value. Count us as part of this "?protection-seeking' group," he wrote.
For his part, Larry Siegel, the research director of the Research Foundation of CFA Institute and a senior advisor at Ounavarra Capital LLC, predicts that "interest rates "” despite economic recovery and signs of inflation "“ will defy expectations by continuing to edge downward. "The continued strength in the bond market is caused by liability hedgers and foreign buyers who still regard the dollar as a safe haven," he said.
Siegel also predicts that stocks will be up for most of the year but will sell off after President Barack Obama "pulls off a squeaker after the markets have priced in a Republican win."
What's more, Siegel predicts that the Democrats also do surprisingly well in Congress, "retaining the Senate by one seat and narrowing the Republican House majority."
And to that and the other predictions we can only say that time will tell.
Robert Powell is editor of Retirement Weekly, published by MarketWatch. Learn more about Retirement Weekly here. Follow his tweets here.
Robert Powell has been a journalist covering personal finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News.
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