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Wealth Matters: Analysts and Advisers Review 2011 Investment Predictions

December 30, 2011 by Leave a Comment

I’M not the only one who has seen prognosticators through the years make a wrong call — Dow 36,000! Dow 5,000! But I can’t recall any of them being asked to explain months later why they slipped up.

So last January, I thought it worthwhile to find a group of analysts and advisers who would be accountable for their predictions, a group willing not just to make investment recommendations for 2011 but also amenable to my checking in every quarter to assess how they were doing.

Let me pause and thank the group for being good sports. Only one dropped out, when he left the firm, and one other was miffed when I highlighted a call he had changed.

As for the exercise itself, it did not turn out as I had expected. When 2011 began, many indicators in the United States were pointing to the start of an economic recovery, including improved consumer confidence and increased growth projections. What happened was far different and far more complicated.

Here are just a few of the economic shocks of the year: the earthquake and tsunami in Japan; the revolutions throughout the Arab world; the debt problems in Greece, and now other European countries, that are a drag on the European Union; the spike in stock market volatility from August onward; and the continuing political clashes in the United States over spending and taxes, along with Standard Poor’s downgrade of the country’s credit rating in August.

“This is probably the hardest year I can remember in a very long time for managing money,” said Richard Madigan, chief investment officer for J.P. Morgan’s Global Access Portfolios. In 2008, “you could assess what you thought was happening in the world and dive into the trenches and fight it. This year was tough.”

Still, an analyst’s job is to get things right through thick and thin. So in the final column with this group, I asked the participants to identify their best and worst calls, what surprised them and to predict what lies ahead for 2012.

BEST AND WORST CALLS The one call everyone missed was just how much the prices of United States Treasury bonds would rise, even after Washington almost came to a standstill last summer over raising the debt ceiling and the country’s credit rating was lowered. Beyond that, the best calls were a mix.

Bill Stone, chief investment strategist at PNC Wealth Management, backed dividend-paying stocks at the start of the year and never wavered, though he acknowledged after the third quarter that the reasons this call worked changed as the year went on.

In the beginning, he argued that money was going to move from bonds to stocks, and dividend-paying ones would rally first. Then, he saw a company’s ability to pay dividends as a sign that these companies were well run. After the summer, he and many other analysts pointed out that dividend-paying stocks were a good option for income when the yields on 10-year Treasuries fell to around 2 percent.

Now, Mr. Stone said, the country is in a period of what he called financial repression, where interest rates are lower than inflation, and he said dividend-paying stocks were a good option for generating income and preparing investors for an eventual increase in inflation.

“Dividend-paying stocks at least give you a chance to win over some amount of time,” he said. But the best plan back in January, he said, would have been to have “ignored all that and run to long-term Treasuries, even though it made no logical sense.”

He was not alone in his enthusiasm for this asset class. Mr. Madigan said he had invested $2 billion in dividend-paying stocks in 2011, to good results. He said it was part of a broader strategy of focusing on less volatile investments.

A different rationale motivated Niall J. Gannon, director of wealth management at the Gannon Group at Morgan Stanley Smith Barney, to focus on investing in consumer companies with a global reach, like Procter Gamble or Gillette. (In many cases, these companies also pay dividends.) He remains convinced that the best strategy over the next 10 years is to focus on the middle class in emerging markets (even though his more profitable short-term call this year was on municipal bonds).

“I still have a positive view of humanity,” Mr. Gannon said. “The world welcomed its seven billionth resident. I look at it as the seven billionth consumer. We’re moving in the right direction.”

SURPRISES The big surprise for everyone — after Treasury prices — was just how intense and frequent this year’s crises were. Most members of the group were humbled, if unbowed, by what world events did to their finely wrought analyses.

Marc D. Stern, chief investment officer at Bessemer Trust, said he was glad that he did not get caught up in the emotional swings of the year. “We didn’t panic,” he said. “We made adjustments during the year, but we never went to a position of maximum defensiveness.”

Yet he came across as the most humbled by the swoons of 2011, even though he made some good calls, like predicting solid corporate earnings growth, being skeptical of the value of the euro and adding money to high-yield bonds.

Article source: http://feeds.nytimes.com/click.phdo?i=2e669435d079371e9dd7e07fb0079219

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Aid Pledge by Group of 8 Seeks to Bolster Arab Democracy

May 29, 2011 by Leave a Comment

At a series of working sessions that lasted until the early morning hours Friday, representatives of the Group of 8 expressed concern that the democracy movement in the Arab world could be “hijacked” by Islamic radicals if the West did not help stabilize the economies of the two countries that touched off the Arab Spring, according to two European diplomats who were present during the discussions.

Comparing the uprisings that are sweeping the region to the fall of the Berlin Wall, which eventually paved the way for a historic shift to democracy in Central and Eastern Europe, the group said in a communiqué that its aim was “to ensure that instability does not undermine the process of political reform.”

How much aid the Western powers would ultimately provide, and how effective any aid would be during volatile political transitions in the two countries, remained uncertain. The group’s official communiqué promised $20 billion, which would be a major infusion of funds.

President Nicolas Sarkozy of France, the meeting’s host, said the total could be double that. But he and other officials did not specify how much each country and international development agency would provide, and the Group of 8 countries have in the past made commitments that they did not ultimately fulfill.

Even so, the incomplete transition in the Middle East was a dominant worry at the meeting. Democracy, the leaders said, could be rooted only in economic reforms that created open markets, equal opportunities and jobs to lower staggeringly high unemployment rates, especially among restless youths.

“We’re seeing growth slow, budget deficits rise, in the case of Egypt, some foreign exchange reserves being lost,” said David Lipton, a senior director for international economic affairs at the National Security Council. “We and the countries both see the very high priority of keeping the countries stable so that the backdrop of democratization is one of economic stability rather than instability and chaos.”

That challenge has grown acute in Egypt since the fall of President Hosni Mubarak. Revenues from tourism, a mainstay of the economy, have plummeted by 40 percent, the new military government says.

Foreign investment has dried up. Factories are paralyzed by strikes. Meanwhile, prices for food and energy have surged, leaving people feeling deeply insecure ahead of crucial parliamentary and presidential elections in the fall.

“We members of the G-8 strongly support the aspirations of the Arab Spring, as well as those of the Iranian people,” the leaders, who discussed the situation with the prime ministers of Egypt and Tunisia here, said in the communiqué.

Officials said the aid would come from the member states of the Group of 8, which includes the United States, Japan, Canada, Britain, France, Germany, Italy and Russia, and from international organizations, including the World Bank, the International Monetary Fund and the European Investment Bank.

Officials cautioned that the projected $20 billion in aid from international financial institutions would come in phases and be contingent on democratic and economic reforms. The pledge, an aide to President Obama said, was “not a blank check” but “an envelope that could be achieved in the context of suitable reform efforts.”

There is a fear, shared by both the American administration and democracy activists, that plunking down large dollar pledges upfront would risk funneling money into the hands of institutions, including the Egyptian military, which could misuse or simply siphon it off.

Even such a large infusion is dwarfed by the scale of the two economies — $500 billion in Egypt and $100 billion in Tunisia. Mr. Sarkozy said that he hoped the total aid package would eventually reach $40 billion, including $10 billion from Saudi Arabia, Qatar and Kuwait.

Qatar is also urging its Persian Gulf partners to consider creating a Middle East development bank to help Arab states making a transition to democracy.

David D. Kirkpatrick contributed reporting from Cairo, Mark Landler from Warsaw and Ian Austen from Ottawa, Canada.

Article source: http://www.nytimes.com/2011/05/28/world/europe/28g8.html?partner=rss&emc=rss

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Chaos of Internet Will Meet French Sense of Order at Digital Summit

May 20, 2011 by Leave a Comment

PARIS — The Tuileries Garden in Paris, a celebration of grand geometric vistas and tightly trimmed topiary, will be invaded next week by the denizens of a decidedly more chaotic space: the Internet.

The first-of-its-kind event is being convened by President Nicolas Sarkozy to put the Internet firmly on the agenda of the Group of 8 countries, who meet next week in France. But an alternate view is that the president wants to push his often-invoked vision of a “civilized Internet” — one that is safer for children, more favorable to copyright owners and more lucrative for the French treasury.

The get-together comes as the Internet takes a central role in powering economic growth and empowering societies, as revolutions in the Arab world have shown. At the same time, digital piracy in the West and censorship in China continue to vex policy makers, prompting calls for greater coordination of Internet strategies.

“The Internet is demolishing barriers, but we are still far from realizing the full benefit of what it can do for our world,” said Maurice Lévy, chief executive of the advertising company Publicis Groupe, who has served as Mr. Sarkozy’s point man in organizing the conference.

The event will also allow Mr. Sarkozy a chance to portray France, which sometimes seems ambivalent about the rise of the Internet, as a progressive, technologically savvy country.

And, less than a year before presidential elections, it will allow him to bask in the spotlight with the leaders of a dynamic industry, as the man who had loomed as his biggest rival, the former head of the International Monetary Fund, Dominique Strauss-Kahn, faces sexual assault charges in New York.

But the more conspiratorially minded French are concerned about Mr. Sarkozy’s intentions. The backdrop of the Tuileries, a physical reflection of the French penchant for imposing order on nature, provides a handy visual metaphor for these critics.

“In spite of a harmless sounding rhetoric, the E-G8 Forum is a smokescreen to cover control of governments over the Internet,” wrote Jérémie Zimmermann, a spokesman for La Quadrature du Net, a group that campaigns against restrictions on the Internet.

Mr. Lévy called this view nonsense, saying that the goal was to generate debate rather than to push the French agenda. While Mr. Sarkozy commissioned the event, the cost will be covered entirely by Publicis and other sponsors from the private sector, rather than the French government. Mr. Lévy said no one should hesitate to challenge Mr. Sarkozy, who is set to give the opening address.

“He will invite people to share their thoughts, to speak loud and clear,” Mr. Lévy said. “He will recognize that the Internet is a common good for the world. At the same time he will say there are still a few issues on which we need your thoughts — net neutrality, privacy, intellectual property protection, et cetera, et cetera.”

The 800 luminaries will gather under a giant tent in the Tuileries Gardens for panel discussions on these and other issues, networking opportunities and a gala dinner in the nearby Louvre. Confirmed attendees include Eric E. Schmidt of Google, Mark Zuckerberg of Facebook, Jeffrey P. Bezos of Amazon and Rupert Murdoch of News Corp.

Most of the events will be streamed live on the Web. But not all of them: About a dozen V.I.P.’s will be invited to the Élysée Palace for a private lunch with Mr. Sarkozy.

At the end of the two-day meeting, a small delegation of participants will travel to Deauville, France, to present conclusions to the heads of state assembled there.

“It will be up to them to decide what to do with it,” Mr. Lévy said. “They can decide it is useless, or they can decide it is interesting.”

If all this sounds a bit like a digital Davos, minus the snow, that may not be a coincidence; Publicis also organizes the annual meeting of the World Economic Forum in the Swiss Alps.

Does the world need another talking shop? Participants of the E-G8 say they welcome the chance to discuss digital policy issues at a global level. There is growing concern about a possible splintering of the Internet along national lines, with different countries adopting different policies on issues like censorship, privacy, copyright enforcement and network access.

Article source: http://feeds.nytimes.com/click.phdo?i=8ea4e9fe8cd3f7ee42cc7ac7a51d23ab

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