• What is the most dominant theme you are seeing that will impact the market over the next year, and how do you use it?
Unfortunately we will probably still be talking about debt crisis in Europe because the political election will be done shortly, the fiscal cliff will happen/not happen in 1Q. A year from now we will know if Q3 was a troughing quarter. The theme a year from now will be what’s happening in Europe. The S&P 500 is much more negatively correlated to US dollar, currently trading at minus 70. Reflecting investor’s concerns about global macro-events, so investors can respond by at least being aware of where the volatility is imminent. Might encourage investors to look at sectors such as consumer discretionary that have a reduced exposure to overseas markets.
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• What is the most critical economic indicator that you are looking at over the next month/quarter?
The purchasing manager indexes for the major regions of the globe. Those would be the quickest and easiest way to see whether the global economy continues to head lower or is recovering from its recent dip into contractionary territory.
• What is the most important government/public policy issue/event that will impact the stock market over the next year?
It would be the fiscal cliff and whether we avoid the fall or interrupt the plunge. That is will the new Congress come to some sort of agreement early in the New Year and make it retroactive to the beginning of the year. The third scenario is we fall off the fiscal cliff and get dashed on the rocks due to Congress’s inability to compromise and it throws the U.S. economy into recession and changes the direction of the unemployment trends.
• What is the biggest issue outside the U.S. that could impact the U.S. stock market?
European leaders’ willingness to embrace a fiscal union to support its existing monetary union.
• What are you NOT worried about?
I am not worried about the repeat of another 2008. A boxer is rarely knocked out by the punch he expects.
• What is the most important article you read in the past week? Why?
"Unhappy Anniversary Dow" in the WSJ. Mainly as a reminder of how quickly markets can respond to seemingly catastrophic events. Eighty three of the 86 market declines of 5% or more since World War II have gotten back to breakeven in an average of 14 months or fewer. The meltdown of 2008 took us four years to get back to breakeven. Compare that to 25 years following the crash of 1929. The article reminded me that stock market history can serve as virtual valium for nervous investors. Reminds me to buy rather than bail whenever the market declines.