Below is the full 2011 Bespoke Roundtable Q&A with Paul Kedrosky of Paul Kedrosky’s Infectious Greed.
1) Looking back on 2010, what were your best and worst calls?
Best: Gold.
Worst: Short RIMM.
2) What surprised you the most and least about financial markets in 2010?
Most: The S&P’s gains.
Least: Gold’s run.
3) What is the one thing that you think has contributed the most to the market rally we’ve seen off the March 2009 lows?
QE!
4) What will be the biggest surprise of 2011?
Facebook IPO drags every tech in sight to public markets.
5) How long will the current bull market continue?
June 2011, or two months earlier than consensus on this survey, whichever is sooner.
6) What are the various indicators that you follow closely telling you right now about where the stock market is headed in the near term (next couple of months)?
U.S. consumer spending.
Ladders on SoCal freeways.
China motor vehicle sales.
7) Many of you noted that cloud computing would be a popular area of the market in 2010, which turned out to be correct. What areas of the market or themes will gain more popularity in 2011?
Social networking. Goldman is already setting the stage here for a year of IPOs. In already public companies, I’m still fond of Saas, but also like apartment REITs.
8) What do you believe is the contrarian call on equities right now? The economy? Is investor sentiment currently misplaced?
Contrarian call on equities: Down.
Contrarian call on economy: Double-dip.
9) There has been a lot of commentary about the US entering into a “lost decade” similar to Japan in the 90s. What is your take on this?
I am a Grantham-ist, in the sense that you suggest here. The U.S. has much work to do to solve its fiscal problems. The challenge is how it plays out: long and drawn-out, back-ended, or front-loaded. I have been in the long and drawn-out camp, but I increasingly feel it’s possible we dodge with a few years of surprising economic growth, and then slug the entitlements wall hard in 2016 or so.
10) In what ways have you had to change your investment strategies over the past couple of years?
I learned to eat my offspring. The asset class and sector rotations have been savage, with few survivors if you stay behind in equities when bonds were favored, or bonds when commodities were favored, etc.
11) What sectors do you believe will perform the best and worst in 2011?
Equities in 2011. Outside shot that it’s Japanese equities, but more likely U.S.
12) Financials have been lagging the market for much of 2010. Do you expect this to continue into 2011? Can the market rally without the Financials?
Demonstrably, yes it can. Because it is.
13) What’s in store for the US economy in 2011?
Base case is a continuing economic resurgence into middle of 2011, albeit with weak job creation.
14) The consensus seems to think that the employment picture will get better in 2011, albeit slowly. Do you agree or disagree with this call?
I mostly agree, but I think the odds are tilting toward job creation being marginally better than expected.
15) What are the biggest problems that could emerge in the coming year that could derail the recovery, and how likely are they to occur?
Euro sovereign meltdown over German intransigence with respect to weaker EC member countries’ bailout needs. China inflation surge leading to over-aggressive tightening, and subsequent synchronized crashes in China-dependent economies, which is to say, all of them.
16) Are Ben Bernanke and the Fed helping or hurting the recovery?
Helping, mostly. The Ben-ster is a hopeless forecaster, but presented with enough evidence that he needs to do something, he does something, albeit late. The bigger issue in 2011 will be the further politicization of the Fed by Congress under the guise of depoliticizing the Fed, led by Ron Paul and Paul Ryan. Longer term, the era of an actively rate-interventionist Fed is ending, as it’s finally being seen for the blunt instrument that it is, with all the implications you might expect for future economic cycles.
17) When will the Fed begin to raise rates, and will this be too early, late, or just about right? (We asked this question last year as well, and rates have yet to change!)
History says it will be at the wrong time. Given fears of deflation remain, that means it will likely raise too late, which in turns means latter part of 2011, at soonest. Biggest confound: the Bernanke Fed would love to earn street-cred from the Ryan/Ron sorts in Congress by raising rates sooner than that.
18) After a bounce off the lows, home prices and sales have begun to dip again. What is the reason for this and what’s in store for real estate in 2011?
End of housing stimulus. Increase in 30-year. Stubbornly high unemployment. Recent history has created housing shell-shock. Most likely case is muddle along, but outlier case is regional booms driven largely by bargain-hunting and foreign buyers, some of which we are already seeing in places like Miami, FL.
19) Will the Dollar (US Dollar Index) be up or down in 2011 and why? Is there a serious threat to the Dollar as the world’s reserve currency?
The U.S. dollar will end the year higher, despite the best and justified efforts of the Bernanke Fed to bring it lower and drive exports.
20) What are your current thoughts on gold – bubble, just the beginning, or fairly valued?
Fairly valued, with risk to downside if economic expansion continues.
21) Oil doesn’t get nearly the attention it got back in 2006-2008, and it seems to be losing steam as an asset class that investors want to be in even though it has slightly outperformed stocks in 2010. What is your take on oil as an asset class in 2011?
Long oil. Excess capacity is being squeezed out, and economic upturn is pushing demand to pre-2008 levels.
22) Which alternative energy sources do you expect to gain the most market share over the next decade, and what are some of the best ways to invest in these areas?
Coal is my favorite alternative energy. Best way to play it is through usual ETF like KOL, or direct to producers. Neither is ideal though.
23) What is your take on the automobile sector in both the US and abroad? Will the new GM stock be up or down in 2011? What is your favorite auto play?
Hate autos. Like airlines, wish sector had been wiped out at inception. I want to like one of the Asian producers, but they have mostly been dogs, led by BYD, which at least is hurting Warren Buffett too. Having said that, autos are widely hated, even if not as vociferously as I hate it, so it will likely do fine in 2011 on renewed consumer confidence. Biggest thing the sector needs is frenzy-creating family-class PHEV (plug-in hybrid electric vehicle), which is at least a year away, especially in minivan category.
24) How will the new Congress impact the stock market and the economy in 2011?
Logjam is good, especially if economy continues doing okay. Having said that, the politicization of the Fed is unlikely to be positive, and could even be very icky if Congress goes mad and starts subpoenaing for Treasury documents, auditing gold bars, and checking Fed staffer fillings for AU content.
25) What is your take on the political environment in the country right now and what changes, if any, need to occur to make it better? Will politics play a larger or smaller role in the year ahead?
It’s hopeless, but only marginally more hopeless than usual. Politics will play a larger role to the extent the economy doesn’t improve and will be largely sideshow otherwise.
26) Is the country finally serious about the deficit problem and ready to take steps to reduce it, or are we just seeing more posturing?
No, and we’re not even seeing posturing, are we? I mean, the deficit commission was log-rolled out of sight, and no senior official in admin or Congress is saying anything specific about anything, as near as I can tell. This country can only make change through crisis, so we will almost certainly charge into a crisis before making change.
27) What are the biggest global threats to the stock market right now, and how much of a threat are they?
Europe, followed closed by Israel taking out Iran’s nuclear production facilities, and thus sparking a regional conflagration. Then oil price spike, which is entirely possible given fragility inherent in shrinking supply margins.
28) Which countries/regions are you the most bullish or bearish on at the moment?
Bullish: U.S., Thailand, Russia
Bearish: Canada, Australia
29) China’s stock market has underperformed most of the world in 2010. Will we see outperformance or underperformance from China in 2011? How do you expect other emerging markets to perform in 2011?
China: Weaker 2011 on tightening monetary policy and inflation worries. Emerging markets: Mostly weaker, with exception of Thailand and possibly India. A year of consolidation and repairs in Brazil, which remains my favorite long-term EM growth story.
30) Will the following be up or down (positive or negative) in 2011? Where noted, what are your 2011 year-end price targets? The price targets are meant to obtain a “wisdom of crowds” consensus number from all Roundtable participants.
-S&P 500 (up or down and year-end price target) Up, 1,350
-Long-Term US Treasuries (up or down) Down
-Corporate Bonds (up or down) Down
-Junk Bonds (up or down) Down
-Gold (up or down and year-end price target) Flat, 1,380
-Oil (up or down and year-end price target) Up, $100
-Dollar (up or down) Up
-Average US Home Prices (up or down) Up
-China’s stock market (up or down) Down
31) Please provide readers with any stocks that you really like right now and for 2011 and beyond (and why).
N/A
32) As one of the most popular financial content providers out there, what advice would you give someone looking to get into this arena, and how has the industry changed since you started doing what you do? Where do you see our industry going with the ever-changing way that individuals and investors get their information?
Democratization and consolidation. Lots more things are moving to periphery, starting with commentary, but now analytics, data and visualization. At same time, lots of people are tying up with other media outlets, like my Bloomberg deal, and getting the best of both worlds.
33) What are the websites, magazines, newspapers, books, apps that you use the most and would recommend others to use?
Honestly, I read everything and nothing. My number one information source is Twitter, and number two is a bizarre collection of RSS feeds, and third is everything else. I rarely read newspapers, watch television, etc. My main info apps are: Echofon (on Mac and iPhone), Reeder (on Mac and iPhone), MacBook Air 13 (2010 edition), and ReaditLater (web and iPhone). Longer cycle, my favorite semi-investing book of 2010 is “Why the West Rules” by Ian Morris. Stop everything and read it now, if you haven’t. Be sure to burn a copy of “Rational Optimist” on way to bookstore.
34) Do you have any other advice that you would like to share with readers heading into next year?
Fading the consensus is only profitable at inflection points, and those inflection points are few and far between.
