NAME: Jack Ablin, CFA
FIRM: BMO Private Bank
TITLE: Chief Investment Officer
ASSETS UNDER MANAGEMENT: $65 billion
YEARS IN THE BUSINESS: 30
LAST YEAR’S RETURNS VS S&P: 5.30% vs. 2.10%
FIRST JOB IN BIZ:  Quantitative Analyst at Keystone Funds in 1982

What is the most dominant theme you are seeing that will impact the market over the next year, and how do you use it?

I believe America’s attempt to reconcile our gaping budget deficit will result in both political contention and economic stress.  While budget reconciliation is in our nation’s best long-term interest, we will no longer count on the $1.3 trillion budget gap to aid our limping economy.  Budget reconciliation will dent economic growth and earnings.  

What is the most critical economic indicator that you are looking at over the next month/quarter?

I’m watching Obama’s re-election chances as a critical short-term indicator and beyond that, jobs.  Not the unemployment rate, but non-farm payrolls; net job creation.  

What is the most important government/public policy issue/event that will impact the stock market over the next year?

Navigating the “fiscal cliff” is the biggest short-term issue facing government.  We are taking the consensus view that lame duck policymakers will punt the deadline until sometime after the first quarter to give the newly-elected Congress time to negotiate a deal  The fiscal cliff is part of the budget reconciliation problem I mentioned earlier.

What is the biggest issue outside the U.S. that could impact the U.S. stock market?

Debt negotiations in Europe.  I sense that European policymakers are playing nice until after the U.S. election, sensing they would prefer a re-elected Obama over candidate Romney.  After November, we could witness continuing confrontation and potentially debt defaults.  Whatever happens, our view is that the euro is overvalued and would have to drop in order to make eurozone economies more competitive.  

What are you NOT worried about?

I’m not worried about the Fed’s monetary policy “blowing up.”  I believe the capital market will give the   U.S. a few more years of forbearance on quantitative easing.  That said, Chairman Bernanke’s bond-buying programs are becoming less and less potent with each announcement.

What is the most important article you read in the past week?  Why?

“Income Inequality may take a Toll on Growth” in the New York Times.  The article underscores the difficult state of our workforce and our middle class.  I’m hopeful that training and education of our workforce combined with the right incentives for small business, we can solve income inequality and boost economic growth.  It will take time, though.