Outlook 2011: Growth and a Return to Normality

Monday, January 3, 2011

Commentators say 2010 was a year of “unexpected” economic and market gains in the face of worries, concerns and reversals. That’s because those pundits allowed 2009’s uncertainties to carry over into their thinking. Looking for the next big, bad event produced numerous false warnings and unfulfilled dire predictions.

2011’s outlook is for growth and a return to normality, based on sound fundamentals and traditional analysis.

In 2011, 2010’s worries are passé

2010’s popular approach was “global mega-trend” thinking. This search for interlinked ebbs and flows (and, especially, risks) can be a fun game, much like political discussions – serious talk about serious subjects. The problem: In the end, the information is too amorphous to be either accurate or of value to investors.

So, how about 2011? Oh, some of 2010’s commentators are still around, especially the ones whose job positions were fashioned for that old environment. Here’s an example:

“‘If there are any surprises to the downside, they’re going to be worse than normal because we won’t be able to buffer them as much,’ said Dori Levanoni, a partner and global macro strategist at asset-management firm First Quadrant LP. ‘In a vacuum, if the world economy can keep up this slow growth then it’s good, but we are more sensitive to outside risks’ because growth is slower than it has traditionally been in recoveries.”

(“World Stocks Defied Year of Worry,” The Wall Street Journal, by Jonathan Cheng, January 3)

Notice 2010’s “double dip” scare is still there, just cloaked by the phrases, “we won’t be able to buffer” and “more sensitive to outside risks.”

The logic, though, is flawed. The argument that slow growth is fragile is flat out wrong. It’s actually a fundamentally sound time in which decisions and actions are made with careful thought and planning.

Compare that to a fast growth environment when the competitive rush produces over optimism and shallow decision-making. That’s when those dangerous bubbles are created.

2011’s new look

Here are two examples of 2011’s focus on growth and a return to normality. Importantly, the information is founded on decision makers’ thinking and actions – not pundits’ prognostications.

Big U.S. companies have cleaned up their balance sheets and, flush with cash, appear open to using it in 2011 on factories, stores and even hiring.”

(“Big Firms Poised to Spend Again,” The Wall Street Journal, by James R. Hagerty and Dana Mattioli, January 1)

“”Companies and boards are being much more proactive on new growth initiatives,’ said Chris Ventresca, co-head of North America M&A at J.P. Morgan Chase & Co. ‘We’re sensing that the status quo isn’t good enough.’

“… Gordon Dyal, the global head of M&A at Goldman Sachs Group Inc., noted that deal-making conditions were ripe this past year. He cited record high-yield bond issuance, stock markets that were mainly higher and relatively low borrowing rates. ‘All those signs indicate that we’ve got a decent M&A market,’ he said, adding that those conditions bode well for 2011.”

(“M&A Began to Pick Up in ’10;” The Wall Street Journal; by Anupreeta Das, Gina Chon and Dana Cimilluca; January 3)

So… Bid 2010 adieu, along with its global, mega-trend fear commentary. Welcome 2011 and its message of growth and a return to normality. For investing, this means we can embrace traditional approaches, especially investing for growth (*)

(*) See “A Key New Year’s Resolution: Invest for Growth

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