2013 A Return of the US Bear?

After  warnings by market forecasters’ that 2012 would likely disappoint  in respect of stocks, it turned out to be a good year as investors’ were buoyed  by the belief that Central Banks would do,” whatever it takes,” to generate economic growth, by way of “QE Infinity, the art of piling ever more debt onto existing debt forever.

In such esteem and trust are Central Bankers and their political masters held that the European Union was awarded the Nobel peace prize whilst the ECB President, Super Mario, was named as the “FT Person of the Year.”

The EU’s unelected bureaucrats suggest that the Nobel peace prize is in recognition of the euro as a “symbol of unity” and rewards the European Union’s “federalist vision” that will triumph over the current crisis, despite a year marked by riots in many European capitals and the real prospect of a break up caused by the euro crisis.

Despite four years of unprecedented monetary stimulus, the U.S. recovery again disappointed, as Q112 GDP was cut in half, from Q411, to 2% annualised and then almost halved again to only 1.3% in Q2 before recovering in the third quarter to 2.6% year on year. Ominously, growth faltered in the face of a forth year of $US Trillion plus fiscal deficit (s) and despite robust corporate Credit growth

As we ended 2012 markets have decoupled from fundamentals and traditional measures of complacency, such as volatility (the VIX), cash levels within mutual funds and sentiment readings, have reached historical levels. Nobody believes that the party will end.

So what about 2013? Will it more of the same, a pause, or perhaps something totally different?

Well, a Bloomberg survey conducted in mid-October 2012, when the S&P 500 Index, better known as the SPX, was at 1430, asked Wall St strategists’ for 2013 predictions and five big banks all expect the 2007 high of 1565 to be surpassed, as can be seen from their projections below:-

                         Bank               2013 SPX Target
Goldman Sachs 1575
Bank of Montreal 1575
Oppenheimer & Co 1585
Bank of America Corp 1600
Citigroup Inc 1615


To be fair, they expected some shorter term volatility over the fiscal cliff uncertainty, which indeed transpired, but all are unanimous that Federal Reserve and other Central Bank “support” will ensure continued rises for stocks and stronger economic growth.

With the SPX closing yesterday at 1461, it’s ahead by 2.2% since that mid-October survey, about equivalent to the one day move witnessed on New Year’s Eve as the politicians voted to “avoid” the US fiscal cliff, but a fairly tired move for a near 3 month duration.

We prefer not to give predictions publicly, preferring to share them with our paying clients. However, a contrarian would observe that when everyone is on one side of the boat, it’s usually a good idea not to join them.


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