Below is the full 2012 Bespoke Roundtable Q&A with Charles Kirk of The Kirk Report.
1) Looking back on 2011, what were your best and worst calls?
Although I expected volatility and correlations to rise somewhat, I did not expect the extent to which both would occur. I was also dead wrong about thinking we would see another round of QE3 from the Fed.
2) What surprised you the most about financial markets in 2011?
I am surprised by the growing and dominant influence program trading has asserted over the entire market and the subsequent impact it has on conditions. In this environment, fundamentals mean nothing. Only short term technical setups.
3) The S&P 500 hit its bull market highs in April 2011. Which will happen first? Will we first take out the April highs or have we entered a new bear market (a decline of 20% from the highs)?
I have absolutely no idea. With all due respect, I do not think it is helpful for traders who desire to earn a living from trading to be in the prediction business. My goal is not to predict, but to simply trade the patterns and technical setups as they develop with the least amount of bias and emotion possible. Heading into the new year, my focus is on the resolution of two very important technical patterns: the inverse head and shoulders setup and the triangle formation. Confirmation of either one will prove significant. See this daily chart of the S&P http://kirkreport.com/tkr/HuKxqazp.
4) Depending on your answer to question 3, how long do you expect the bull or bear to last?
Duration is uncertain, but measured move targets for the triangle pattern are of some help in terms of overall price objectives. If a confirmed breakout to the upside occurs, we could see a move to S&P 1470 while a bearish breakdown sets up a move to S&P 970.
5) How should an investor with average risk tolerance be positioned for the year ahead?
I can only tell you how I am positioned, which is heavily in cash with a neutral but opportunistic mindset. The good news is that I do not think we will stay at these levels for long and it will be important to be repositioned based upon how the technicals improve or deteriorate.
6) How do you see the European sovereign debt crisis playing out in 2012?
The trend in this situation is crystal clear: lots more talk, more promises, and gimmicky government intervention with too much focus on avoiding short term pain. None of this will work to solve the core problems (just like we are seeing in the US), but will lay the groundwork for some powerful short squeeze "rip your face off" type rallies that we will want to participate in fully. In other words, not much is going to change from what we saw in 2011 with greater than average risk that things could get much worse before they get significantly better.
7) How bullish or bearish are you on the following markets: The US, Europe, Developed Asia, China, Emerging Markets?
I try never to be very bullish or bearish about anything, but instead I am always opportunistic. In that regard, the areas that have been beaten up the most always interest me the most and those are Emerging Markets and China, both for bullish and bearish trades in 2012.
8) What do you believe is the contrarian call on equities right now?
In tracking sentiment, I always place greater importance upon what people are actually doing with their money rather than what they report on surveys. So, the sentiment picture is quite clear: in 2011 investors worldwide yanked $34 billion out of equity funds and put $75 billion into bonds (according to data from EPFR Global). So the most contrarian call I can make is that bonds will significantly underperform and that equities would rally significantly from here.
9) How confident are you that US companies can live up to current consensus earnings expectations?
Based upon my own channel checks and industry contacts, it appears that the fourth quarter is not nearly as strong as many currently expect.
10) Are US stocks cheap right now based on the valuation methods you rely on most? Will multiples expand or contract in 2012?
Value is always in the eye of the beholder on any given day or time. In my experience, those who base their strategies on valuation methods are doomed for failure as, I have never found one method that consistently works or provides a good timing indication on forward market performance. In my career, I have seen far too many cheap stocks/markets go much lower after being cheap, just like I have seen extremely overvalued stocks/markets provide significant upside returns. The sooner we all stop thinking in terms of valuation and simply just trade the market you see and the price action primary, the better off you will be.
11) Describe some of your favorite market indicators and what they are signaling for stocks in 2012?
The only indicator I trust is price and its direction through trends and patterns. What they suggest to me is that the market is setting up for a powerful, most likely, trend type move.
12) What are your favorite and least favorite sectors for the year ahead?
No reply, I trade in much shorter time frames than one year cycles.
13) What is your outlook for Financials?
14) What is in store for the US economy in 2012?
More of the same as we have seen in 2011 with the underlying issues, i.e. widening wealth gap and political stupidity continuing to play a significant role.
15) Economic indicators as a whole came in better than expected in the fourth quarter. Do you expect this trend to continue in the first part of 2012?
16) What is your take on the employment picture in the US? Will we see the unemployment rate get below 8% by Election Day?
It seems highly unlikely and, if that were to happen, it would be a positive surprise in 2012.
17) Are Ben Bernanke and the Fed helping or hurting the recovery?
In my view, the Fed has no significant impact. The Fed's influence is primarily on the markets and, only by extension, the wider U.S. economy through the so called wealth effect. Unless the Fed can figure out a way to ignite another QE1 or QE2 type rally once again, I do not see them having much of an influence in 2012 in the current hostile political environment.
18) The Fed's Zero Interest Rate Policy (ZIRP) has really hurt savers and anyone out there looking for yield. Where should investors go to find yield right now?
The best yield on your investments is likely to be found far away from markets. My recommendation: invest in yourself, your health, your business, your children, and your future. Your yield from these investments will be far greater than anything you will achieve in the market.
19) The housing market continues to struggle. Are we close to making another bottom in residential real estate? Are there specific areas of the country that you are more bullish or bearish on?
Like politics, all real estate is local and at least in my neck of the woods, the local market still blows.
20) Will the Dollar (US Dollar Index) be up or down in 2012 and why? Are there any other currencies that you have a strong opinion on? How much trouble is the Euro in?
Long dollar, short Euro trade is probably the most crowded trade there is at the moment and I try to avoid crowded trades.
21) Gold has underperformed stocks in recent months. Will this continue in 2012? Will gold see gains in 2012?
Another crowded subject to massive government influence not to mention being held by doomsday nuts and nervous nellies. There are far better and easier trades out there in my view.
22) The ratio of platinum to gold is currently at its lowest level ever (platinum is actually cheaper than gold right now). Is platinum a good buy relative to gold?
23) Where is the price of oil headed? How about the spread between Brent Crude and West Texas?
24) What are your predictions for the 2012 election? Which party will win the Presidency, the House and the Senate? Who will become the GOP nominee, and what are the chances that nominee will beat President Obama?
It is likely that a third party candidate (unknown, but perhaps Trump or Ron Paul) will make big waves this year, but in the end, it will be four more years of Bama.
25) How will the elections impact the stock market in 2012 and beyond?
Expect more political games as Republicans desire to take down the market and gain power while Obama and the Dems do everything they can to fight back.
26) Will the US Supreme Court rule that ObamaCare is unconstitutional?
Yes. Congress intentionally designed it so that it could be killed by the Supreme Court. It is my view that the only reason it was passed in the first place was because everyone knew that it would be thrown out eventually.
27) How do you see the US tackling its debt problems in the years ahead?
American politicians will do what they do best, which is to figure out new and crafty ways to raise taxes on the middle class and poor while giving the wealthy even more tax breaks. If necessary, I suspect they will start a new war with Iran or Pakistan to keep the masses fearful and distracted. In other words, expect more of the same game plan we have seen for many years.
28) What are the biggest threats to the global financial system right now, and are they avoidable?
The massive amount of sovereign default protection that has been sold, similar to what we saw previously with AIG. After that, the massive amount of leverage that continues to be employed (i.e. MF Global]. Finally, it is only a matter of time that these programs will break down and crash the market.
29) Hedge funds as a whole underperformed the S&P 500 in 2011. How will hedge funds perform in 2012? What is your take on the hedge fund model in general?
The hedge fund herd will continue to be thinned out with the above average possibility of seeing some large-scale failures and defaults.
30) Will the following be up or down (positive or negative) in 2012? Where noted, what are your 2012 year-end price targets? The price targets are meant to obtain a wisdom of crowds consensus number from all Roundtable participants.
No reply, predictions are not my forte.
31) Please provide readers with any stocks that you really like right now for 2012 and beyond.
32) Where is Apple headed as both a company and a stock? How about Google?
Both are prime quality companies and will remain that way for the foreseeable future.
33) Facebook is expected to IPO in 2012. Would you be a buyer or seller of the stock at its opening price on the day it goes public? How long would you hold it?
We have not seen this much hype over an IPO since Google went public. While I do not trade IPOs anymore, I would say the bulls/buyers of the post public price will have a short term advantage given the hysteria this company and its debut will invite.
34) Which technologies are you currently the most bullish or bearish on? Are any of them game changers like the PC or the Internet were?
35) What are the website, magazines, newspapers, books, apps that you use the most and would recommend others to use?
Too many to list. The environment is so much better than it has ever been before.
36) What are your favorite Twitter feeds?
Brian Shannon's AlphaTrends.
37) Do you have any other advice that you would like to share with readers as we enter 2012?
Do yourself a favor this year and tune out the noise as much as you can. This includes predictions, hopes, and fears from others as well as even those you hold personally. Instead, the path to greater profits is simple: follow price action above all else, look for opportunities, and trade those opportunities you discover that fit within your strategy, risk tolerance, time horizon and objectives. This game is not as difficult as many believe and, if you do this, 2012 has the potential to be your best year ever!