Tough job market, higher stocks
By Francine Knowles Business Reporter, fknowles@suntimes.com January 12, 2012 8:58PM
Panelists: Dennis Gartman, Diane Swonk and Dr. Robert J. Froehlich discuss the outlook for the economy at the Executives' Club of Chicago Economic Outlook luncheon. | Al Podgorski~Chicago Sun-Times
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Updated: February 14, 2012 10:24AM
One sees the Dow reaching 16,500 this year, and another expects the residential real estate market to remain stuck in the doldrums for several years beyond 2012.
Those were among some of the more eyebrow-raising forecasts shared by economists speaking at the Executives’ Club of Chicago’s annual economic outlook luncheon program Thursday, moderated by Chicago Sun-Times financial columnist Terry Savage.
The trio of experts told the packed international ballroom at the Hilton Chicago they see no major U.S. job recovery this year, economic growth below 3 percent, and continued gridlock in Washington — at least until the presidential election.
Here’s a look at other tidbits served up this year by Diane Swonk, Mesirow Financial chief economist; Robert Froehlich, executive vice president and chief investment strategist for Wealth Management at the Hartford Financial Services Group; and Dennis Gartman, editor and publisher of The Gartman Letter.
Swonk:
She forecasts the U.S. economy will grow at a 2.25 percent rate this year and the Dow Jones industrial average, which closed at 12,449 Wednesday will end up at 13,500 this year. Swonk, who addressed the gathering last year, had then forecast the Dow would end up at between 12,500 and 12,700 over the year, not far off the mark.
On the jobs front, “I do think we’ll continue to generate jobs, and the unemployment rate will continue to whittle away, but not fast enough or in a great enough pace to make us feel better,” she said.
She expects the Federal Reserve to continue to focus on policies designed to get corporations to inject into the economy some of the $2 trillion they have sitting in cash reserves on their balance sheets, but noted that remains a challenge and a problem the Fed can’t solve alone.
Among her major economic fears: the fate of the euro. If it fails, sending European economies into tailspins, it won’t stop at their borders, she contended.
Decoupling is a myth,” she said. “When one major economy falters, the whole world falters.”
But the odds are in favor of the euro surviving, because the cost of it failing would be greater than the cost of continuing the euro zone, she contends.
Among her U.S. worries, the scheduled expiration of the Bush-era tax cuts at the end of this year and insufficient action on deficit reduction. But she notes a lame duck Congress could be inspired to tackle the problem.
Asked where she’d invest $100,000 today, her pick: residential real estate investment trusts. In the wake of foreclosures, there’s increasing demand for rental properties, presenting opportunities for investors, she noted.
Froehlich:
He thinks Europe will narrowly avoid recession this year and expects growth in China to accelerate with GDP growth there between 9.5 percent and 10 percent.
He expects the Central bank in Europe to focus on fixing the economy by lowering interest rates between 150 and 200 basis points the first six months of this year. That will cause German exports to take off benefiting European economies, he said.
He also expects China to reduce interest rates this year and said the country “will be the engine of growth that will bring emerging markets in Asia along with it.”
As for the U.S. economy, “We’ll sort of muddle along,” he said, noting growth here will be “hard pressed to get to 2 percent.”
Among the headwinds that can’t be fixed this year, he said is the residential real estate market. “It’s not going to get better in 2012,” he said. “It’s not getting better in 2013, 14 15 or 16. It’s an asset bubble” problem, he said adding, “Asset bubbles don’t take years to fix. They take decades.”
He expects the unemployment rate to be stuck at 8.5 to 9 percent. The reasons: older people can’t afford to retire and small businesses don’t have access to capital, which has them keeping the brakes on hiring.
“The banking system in this country has a new plan and the plan is anyone that needs money, we’re not going to give it to you and anyone that doesn’t need money we’ll be happy to lend you that money,” among the many lines he delivered that drew laughs.
He added for workers at large corporations doing the work of two or three people in the wake of the layoff of thousands of workers during the recession, relief isn’t coming he said. Companies have learned they can make do with much less and will continue that model, he contends.
His picks for stocks are large companies and dividend payors, and he expects the Dow to rise 8 percent this year. He’d wrongly forecast the Dow would close at 14,000 in 2011. Among companies he’d invest $100,000 in this year are energy stocks like Exxon and BP, health care companies Abbott Laboratories and Baxter International and media companies.
Gartman:
He doesn’t see U.S. unemployment falling below 8.5 percent this year.
“I think until the election is done, until we have some resolution, I think the propensity on the part of American business to do anything as far as hiring people is going to be minimal at best,” he said.
He says we could see inflation and deflation this year. There may be modest inflation on food and energy prices, with grain markets dramatically higher, he said, adding, there will be deflation on wage rates.
As for the euro, he contends it’s doomed.
He’s very bullish on equities, forecasting the Dow will end the year at 16,500.
In global equities, he forecasts prices to be 10 percent higher by the end of the year.
“If I’m wrong, I’m low,” he said.
As for gold, he expects it to go higher, but didn’t say how much.
He said if he had $100,00 to invest, he would put it in Canadian stocks and Canadian dollars, coal, corn and Chevron.
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