Posted by: David Tweed on February 9, 2012
It’s all about equities. On the day that BlackRock CEO Larry Fink told Bloomberg TV that investors should be 100% in stocks, the MSCI All-Country World Index touched bull market territory, signified by an increase of 20 percent since last year’s Oct. 4 low.
Fink says concern over Greek politicians squabbling about the conditions needing to be met to unlock a second bailout are just “noise” and that a deal “will be worked out.”
That’s pretty much the view of Bob Parker, a senior adviser to Credit Suisse Asset Management (CS), who predicts a two-year equity market rally starting in the second half of this year. “It’s dangerous to be short global equity markets,” he told Linzie Janis and Owen Thomas on Feb. 8. “Are equity markets going to be higher at the end of the year? The answer is: decisively yes.”
Parker is optimistic for three reasons: the risk of U.S. recession is “gone,” he says; China’s economy is headed for moderate slowdown and nothing more severe; and the risk of a euro zone breakup has been reduced thanks to the European Central Bank’s infusion of liquidity into the banks via its three-year loans.
Guy Spier, chief executive of Aquamarine Capital Management, also sees equities rising as corporate earnings growth accelerates and European policy makers make slow but steady progress resolving the debt crisis.
“I don’t think the debt crisis has been handled with the greatest of efficiency, but Europe is muddling through,” Spier says. “I think that many actors, including myself, are recognizing that the powers that be will hold the euro together.”
Both Spier and Parker forecast a mild euro zone recession this year, with Parker looking for a contraction of 0.2% to 0.3%.
That view tallies with some economists. Greg Fuzesi at JPMorgan (JPM) last month raised his first-quarter euro zone forecast to zero from an annualized contraction of 1.5%, after January’s improvement to the Purchasing Managers’ Indexes for services and manufacturing.
Sure, there are plenty of people like Jamie Dannhauser at Lombard Street Research who say getting excited about the PMIs seems a little premature, but my sense is that we are at a turning point as others like Erik Nielsen at UniCredit (UCG:IM) predict forecasts for the euro zone to be revised higher on the back of better data, including three improvements in German business confidence in a row and improving Italian PMIs.
Carsten Brzeski at ING is another optimist. Check out his report, “Swan song for the recession? Four reasons for a quick rebound of the German economy.”
And one more voice: James Nixon, chief European economist at Societe Generale: “People have not really anticipated the scale of the ECB’s actions. We’ve seen the ECB expanding its balance sheet by 730 billion euros since the second week of August last year and that’s a display of unbridled central bank authority and yes that is a form of QE and a lot of that will end up in the equity markets.”
See that interview on Bloomberg TV today.
Photograph by Hannelore Foerster/Bloomberg