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Roundtable discussion

Look forward to bull market, positive times, say experts

Investors expect big 2012

If a group of six local investors is any indication, 2012 is shaping into a year for the bulls.

“It doesn’t get much better than this,” said Bill Holland, owner of The Holland Group, on the state of U.S. equity markets. “We’re due for good times.”

With earnings up and corporations in good shape in most sectors, Holland predicted indexes would reach record highs by summer.

At an executive roundtable hosted by The Daily Transcript on the same day the Bureau of Labor Statistics released a report showing the economy added 243,000 jobs in January, he was part of a chorus of investors that called for a bull market in 2012.

“It’s a perfect storm on the way up,” said Steve Wolff, managing partner of Wolff Wiese Magana.

Currently, investors are facing the comfortable position of putting their money into recognizable companies with proven business models and pristine balance sheets, the roundtable said.

It’s a far cry — with the best investments being companies everyone knows — from the Internet boom era, when investors were left to side with unknown new startups that did things the average stock picker couldn’t describe, according to Linda Stirling, senior vice president of RBC Wealth Management.

John Ippolito, regional president of Northern Trust, cited Caterpillar (NYSE: CAT) as an example to the positive trend in the market.

The international construction machine company reported sales and revenues of $60.14 billion in 2011, a 41 percent increase from 2010, far exceeding investor expectations on the shoulders of better-than-expected demand, despite its sizable presence in the troubled eurozone. Profit in 2011 was up 83 percent, and fourth-quarter sales and revenues set an all-time quarterly record for the company, at $17.24 billion.

As of the day of the roundtable, Feb. 3, NASDAQ was sitting at an 11-year high, the Dow Jones Industrial Average was at its highest point since before the financial crisis, and the S&P 500 was in the midst of its best start to a new year since 1987.

All of those positive elements create an optimistic sentiment that sticks in the minds of CEOs, increasing their willingness to hire, and creating a feedback loop of economic improvement, according to Stirling.

Kelley Wright, chief investment officer of Investment Quality Trends, said the climate remains a bit more mixed than the day’s returns would indicate, but reiterated that there are more positive days ahead.

“The U.S. domestic equities market is the only game in town,” he said.

Neil Hokanson, president of Hokanson Associates, however, tempered the room’s enthusiasm.

Substantial employment gains remain needed to unwind the stress that’s still present in the housing market. And the dividend payout ratio to S&P earnings is at its lowest point in 20 years, suggesting there isn’t a high degree of confidence in future profits, despite current corporate profits sitting at record levels.

“We haven’t dealt with a lot of the underlying problems yet,” he said.

Ippolito joined in questioning the bullish expectations, pointing to the ongoing issues facing the eurozone.

“The sovereign debt crisis hasn’t gone away,” he said. “It’s real.”

Others questioned how much effect Europe could really have on American markets.

Greece has troubles, but it’s only the size of Rhode Island, according to Holland, and shouldn’t be expected to wreak havoc on a global scale, no matter its troubles. Wolff pointed to a recent survey of his clients that showed 85 percent expect to be in a better position at the end of the year.

Wright, though, pointed to the low trading volume that’s currently facing the market, suggesting that institutional investors, regardless of what they say is their perspective, aren’t going all in, at least not yet.

Hokanson pointed to low interest rates in arguing that the country could be looking at a “lost decade” scenario, which has now been facing Japan for nearly two decades.

Japanese corporations did fine during those years, he reminded.

Low rates imposed by the Federal Reserve’s loose monetary policy have forced investors to take more risks than would generally be the case, according to Wolff.

But Ippolito reinforced the general sentiment that barring an unforeseen external circumstance, equity markets are poised for a big year. He said he’s fielding calls in the middle of the night from clients who had been out the market for years, saying they just can’t stand sitting on the sidelines anymore.

Roundtable Participants

Neil Hokanson, President, Hokanson Associates

Bill Holland, Owner, The Holland Group

John Ippolito, Regional President, Northern Trust

Linda Stirling, Senior Vice President, RBC Wealth Management

Steve Wolff, Managing Partner, Wolff Wiese Magana

Kelley Wright, Chief Investment Officer, Investment Quality Trends

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