It’s another one of those spirited bull-bear market duels, a fight between institutional investment adviser Elaine Garzarelli, who, more often than not, is positive on the stock market, and the bearish fraternity.
The veteran market analyst, who dazzled Wall Street in the 1980s and early 1990s with a series of on-the-money market forecasts, predominantly bullish, currently doles out investment advice to about 100 pension, mutual and hedge funds, which manage aggregate assets of more than $1 trillion. A Garzarelli client, on average, runs minimum assets of $150 million.
Ignoring what some argue is an ill-advised rush into equities, principally by institutional investors, leading to an overbought market, Garzarelli is vigorously sticking to her bullish guns. In brief, she says it’s simply the wrong time for investors to quake in their boots. In fact, she says, “2012 is going to be a great year for stocks.”
Bears like investment adviser Michael Larson, editor of the Safe Money Newsletter, strongly disagree, largely because of the inherent risks they see in a highly treacherous environment rife with a slew of dangerous domestic and foreign land mines, any number of which could suddenly explode and send stocks skidding.
Larson says the end result of many of these land mines in 2012 is inevitable: a rash of debt downgrades and a plunge in the Dow to 7,000. His view on the growing bullish fervor: “The bulls should set-up offices in La La Land.”
The land mines Larson and other bears are citing are no state secret. But the unnerving factor is the abundance of them is such that they could easily limit any legitimate hopes for a sustained market rise from current levels, as well as scare away potential investors. In other words, it doesn’t make sense to go swimming in alligator-infested waters. Chief among those land mines:
–Ongoing housing and job markets woes, a major deterrent to robust economic growth.
–An army of Republican Congressional Obama haters, which guarantees more Washington gridlock for another year.
–A ballooning U.S. national debt of $15.2 trillion and counting.
–A developing European recession, a worrisome European debt crisis that many say could get a lot worse and the possibility of major European bank failures.
–The strong prospects of a world-wide economic slowdown. Pimco, the world’s largest bond fund, is one such worrier, recently forecasting that global economies would grow as little as 1% this year.
–Slowing growth of emerging economies. In fast-stepping China, for example, home prices in November fell in more than 50% of its 70 biggest cities, while new home prices in Beijing plummeted 35% between October and November.
–A wildly unpredictable, nuclear-bent Iran, which is threatening to shut the Strait of Hormuz, a passage through which about 20% of the world’s crude supply is transported.
Garzarelli is hardly cringing. Her current market view: Stock up on stocks now! Her rationale: A somewhat peppier U.S economy, evidenced by the fact that GDP growth, since the recession lows, has averaged 2.4%, spurred by improvements in the unemployment rate, employment claims, consumer confidence, manufacturing and corporate profits.
On top of this, Garzarelli, points out, mortgage rates are low, vehicle production is up three months in a row, gas prices are down, bank lending is up and she believes there will be no Federal Reserve tightening for several years.
As such, our market guru sees a series of economic plusses, with GDP growth up 4.5% in the fourth quarter of 2011, 2% in 2012 and 2.5% in 2013. Further, she sees S&P 500 operating earnings growing 3% this year, followed by another 3% to 4% gain in 2013
Moreover, she says that the 12 indicators she tracks, including monetary, economic cycles, valuations and sentiment, as a group, are a resoundingly 80% bullish.
Still another positive factor, according to Garzarelli, are the prospects of better days in Washington, given the strong likelihood of a new Republican President, probably, she says, Mitt Romney.
To our bull, her expectations all add up to about an 11% gain this year in the S&P 500.
Garzarelli, it should be duly noted, is not one of those diehard bulls. She turned bullish in March of 2009 (a month in which the Dow hit a low of 6,547), went negative in May of 2011 when her market indicators weakened (a snazzy switch that was followed by about a 20% decline in the S&P 500) and then she resumed her bullish stance last November.
Garzarelli, by the way, is not without her worries. Among them, none of which she believes will come to pass, are the possibility the Eurozone will break apart, with countries there defaulting, a new U.S. recession and a rise in oil from its current price tag of $100 a barrel to $140.
Another matter of concern, she tells me, is the surging number of bullish investment advisers, which is a contrary indicator. The latest figures show this indicator is approaching dangerous territory, what with the number of bullish advisers standing at 50%, says Garzarelli. A reading above 53%, adds Garzarelli, is bearish.
Still, with the plusses outweighing the minuses, she thinks the investment order of the day should be fatter stock portfolios. In this context, she favors what she considers the fastest growing economic areas for superior market performance, and she suggests making some equity bets with Exchange Traded Funds. One of her top picks is XLK, an ETF that focuses on information processing via computers and computer equipment. Included here are such companies as IBM, Apple, Microsoft, Google, Intel and Cisco Systems.
Another favorite is XLI, an ETF that centers on industrial equipment and structures manufacturing. Included in this ETF are such companies as United Technologies, Caterpillar, Deere and 3M.
Equities aside, Garzarelli also is gung-ho on junk bonds, which she sees outpacing stocks this year with about a 15% gain. Her top selection here is an ETF sporting the symbol JNK that is presently yielding 7.7%.
So there you have it–a bull story from a bullish lady, who obviously believes that old marines’ saying: No guts, no glory. Whether she’s spinning a true bull tale or she’s full of bull only time will tell.
Originally published in TrimTabs Money Blog. Used by permission of author.