Scouring for Money in a Difficult Market

 | Jan 27, 2012 | 8:00 AM EST
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The CFA Society of Los Angeles hosted its annual forecast dinner, in which a panel of three investment luminaries offer their prognostications for the year ahead. Your humble analyst attended, along with 300 other Angeleno money managers, in order to receive the wisdom of some talented panelists. They included Paul Hechmer, who was a founder of the NWQ international subsidiary Tradewinds Global Investors; Laurie Goodman, managing director at Amherst Securities, which is the ax in analyzing the mortgage and housing markets; and David Rosenberg, the chief strategist at Canadian money manager Gluskin Sheff.

Hechmer opined on the international outlook, which is his specialty. He was not as bearish on Europe as one might expect, noting that he believes the European Central Bank will print like crazy in order to make the defaults orderly. He expects five countries to leave the monetary union, but not in 2012. He sees a "hard landing" in China, which he defines as 6% growth. He says it will tank their market, but create buying opportunities in strong companies -- for instance, in the energy sector.

Hechmer furthermore believes the yen is overvalued, which is causing problems for the Japanese economy but creating opportunity to buy companies on the cheap. As he looks across the global landscape, he is not sure what will go wrong when or where, so his best advice is to be globally diversified.

Goodman offered a compelling analysis of the current state of the mortgage and housing markets. She noted that we can't "get government out of the housing market" because 90% of mortgages are government-originated. Housing is at its most affordable in decades, yet the market is still broken and not clearing because credit is too tight (via high lending standards).

As a result, most natural buyers can't get financed. This is why 30% of sales are now cash buyers who become landlords. In fact, with the huge overhang of foreclosed supply, Goodman sees the only "fix" to the market as principal reduction to get underwater households back on their feet, and bulk sales to investors (that then rent) to create incremental demand.

The "star" of the evening, Rosy, was still generally bearish, but offered his highest-conviction themes. The first is income stocks. He noted that, in a low-yield environment, income is scare, and you always want to own what is scarce -- not what is in abundance. Income themes should work again in 2012. For instance, the utility sector was the best performer in the S&P 500 last year, and he believes it could repeat this year.

Rosenberg believes corporate bonds look good, as they are priced for a recession, yet are showing only a 1.9% default rate despite a stalled economy. Gold still looks good, because the ECB and Fed need to inflate massively in order to combat the banking system problems. He sees gold at $3,000 per ounce by the end of this cycle, and believes the mining stocks are especially undervalued, as they have not tracked the metal.

No one could leave this dinner optimistic, especially after listening to Rosenberg -- but, nonetheless, all the panelists offered a few pockets where money can be made. As Jim Cramer notes, there is always a bull market somewhere, and this panel certainly offered a few prospects.

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