Richard Bernstein Presents His 5 Favorite Investment Themes For 2012


Richard Bernstein Strategist

Richard Bernstein, CEO of Richard Bernstein Advisors and former Chief Investment Strategist of Merrill Lynch, thinks politics could dominate fundamentals in the stock markets next year.  Indeed, he argues that it will be "investors' biggest challenge" in 2012.  This is according to a recent note he published titled Year Ahead 2012: Politics vs. Fundamentals.

However, fundamentals might not determine 2012’s investment results. With governments intervening in many economies, it certainly seems like global politics, rather than fundamentals, might determine 2012 outcomes. We’ve seen politicians questionably intervene not only in the US, but also in Europe, in Brazil, in China, and in other countries. Political decisions can be capricious, and the resulting investment paths can be considerably more fickle than they might be if based primarily on fundamentals.

Forecasts for 2012 are complicated even more by the apparent tug-of-war between markets and politicians. Identifying and timing the ebb and flow of this tug-of-war during 2012 is likely to be investors’ biggest challenge. Fundamentals suggest avoiding credit-related investments. Politics argue the opposite.

In his note, Bernstein explains how the world economy is going through a painful deleveraging process and that politicians are "fruitlessly" trying to contain this transition.

With this in mind, he cautiously offers five investment themes for 2012.

Politicians will likely skew fundamentals from time to time to buck the consolidating, post-bubble trends. One should not be surprised to see our themes underperform during such periods of political attempts to re-inflate the bubble and maintain status quo.

Within this backdrop, some of our favorite investment themes for 2012 include (in no particular order):

- Overweight of the US equity market, and underweight of emerging markets.
- Overweight of smaller US stocks, with an eye for smaller, domestically-oriented financials.
- Underweight commodities and gold for US dollar investors. Overweight for EM-currency investors.
- Positions in treasuries to maintain portfolio diversification.
- Increasingly avoid alternative assets.

For more color on these themes, you can read Rich Bernstein's outlook here.

SEE ALSO: NOMURA: These 10 Political Risks Will Drive The Market In 2012 >

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Every Time Britain's Backed Away From The EU, It's Suffered Economic And Political Turmoil


Protest London Austerity Cuts

At the just-concluded European Union summit, British Prime Minister David Cameron vented decades of accumulated resentment stemming from his country’s relationship with Europe.

Europeans were appalled at how the last-minute injection of finicky points about bank regulation could stymie what was supposed to be a breakthrough agreement on the regulation of EU countries’ budgets.

Cameron’s supporters in Britain cheered and portrayed him as a new Winston Churchill, standing up to the threat of a vicious continental tyrant.

The United Kingdom’s view of Europe has always been both emotional and ambiguous. A Conservative government wanted to join the European Economic Community in the early 1960’s, but was rejected by French President Charles de Gaulle.

The General mocked the British ambition with a rendition of Edith Piaf’s song about an English aristocrat left out on the street, “Ne pleurez pas, Milord.” In the end, Britain came in from the cold, but British leaders always felt that they were not quite welcome in the European fold.

At two critical moments in the past, a British “no” had a decisive impact on European monetary developments. In 1978, German Chancellor Helmut Schmidt and French President Valéry Giscard d’Estaing proposed an exchange-rate arrangement – the European Monetary System (EMS) – to restore stable exchange rates in Europe. Initially, the Germans and the French negotiated trilaterally, with the UK, in meetings that were slow, cumbersome, and unproductive.

In fact, the talks were sabotaged by British Prime Minister James Callaghan, who started conferring with US President Jimmy Carter about the challenge that the European plan posed to the United States, and how the Anglo-Saxons could respond to the continental threat. As he put it, according to the transcript of one of the phone calls, “with the strength of the German economy, it could be extremely serious, and I don’t know, Jimmy, how to obviate it.”

Callaghan and Carter were right to worry, but they should have worried about themselves rather than the Europeans. At the time, Britain and the US had much greater problems – more radically unstable government finances and feebler economic growth – which ensured the ineffectiveness of their efforts to impede the European negotiations. Once Britain dropped out of the talks, a bilateral Franco-German deal was easily arranged. The EMS became a device for improving French policy and opening up the French economy.

The French position became a model for a new vision of how central banks could operate politically to enhance economic stability. Within a few years, France faced a major challenge when François Mitterrand’s experiment in radical socialist economics collapsed in 1983. When Jacques Delors, Mitterrand’s finance minister and the architect of his U-turn from nationalization and other socialist policies, later became EU Commission President, he was one of the most effective advocates of European monetary union.

The idea underlying the French strategy of tying the currency to German strength, the franc fort, was that it would limit or constrain domestic policy. Mitterrand had to wrestle with a fractious range of coalition partners. On the left, there were Communists, whom he wanted to marginalize politically, as well as Jacobin socialists who wanted a national path of economic development. Some of the most important industrial leaders also pleaded – in secret “night visits” to the presidential palace – for a national path involving devaluation and a weak currency.

The complex European way of constraining domestic opposition never appealed to British politicians. In the early 1990’s, Prime Minister John Major negotiated an opt-out from the Maastricht Treaty’s provisions on monetary union, but was proud that the pound was a stable and – as he saw it – central part of the EMS. In September 1992, a speculative attack on the pound led to Britain’s departure.

The subsequent nine months saw a spectacular collapse of the European momentary order, as speculators worked over one country after another. Spain, Portugal, and the Scandinavian countries followed Italy and the UK out of the EMS, before France itself came under attack – the last of the falling dominos.

The crises that wracked Europe from September 1992 to July 1993 laid the foundation for the final drive to the establishment of European monetary union. Britain was left on the sidelines, and fiscal discipline was to be imposed externally. The major problem, of course, was that in some cases, discipline was not enforced.

As in 1978 and 1992, British obstructionism today may be a blessing in disguise for the rest of Europe. In particular, it opens the way to a Europe of variable geometry, in which only those countries willing to accept stability criteria will go forward with deeper integration. Institutionally, this may be more complex than an EU-wide treaty amendment, but the result can be tailored and crafted more appropriately to the real situations of rather diverse countries.

By contrast, for Britain, the legacy of its heroic defiance of Europe has been much bleaker. In both 1978 and 1992, the immediate aftermath was a substantial period of economic and political turmoil. Monetary shocks led to geopolitical irrelevance.

Today, as in 1978, the UK and the US are in a parlous fiscal state, and schadenfreude about European problems is no substitute for embarking on a strenuous path of reform.

Cameron, in particular, should not allow comparisons to Churchill go to his head. No one would include James Callaghan and John Major in the ranks of great British leaders. Cameron, too, could one day be remembered as a barely relevant and largely discredited figure.

This post originally appeared at Project Syndicate.

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Source: http://feedproxy.google.com/~r/businessinsider/~3/bK9BJUdD5ag/every-time-britain-has-backed-away-from-the-eurozone-its-ended-in-economic-and-political-turmoil-2011-12

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Unemployed Debt consolidation reduction: Dissolving Twin Burden connected with Unemployment and Debt

Okay, did you wish for the fairy godmother to detract debts? You are doubtful if it will work- especially while you are unemployed. You are certainly unhappy with the current circumstances. You want to function, have the ability to cover your own bills. Everyone wants that independence and control. Debt consolidation for unemployed can enable [...]

Source: http://www.legaldebthelponline.com/2011/12/10/unemployed-debt-consolidation-reduction-dissolving-twin-burden-connected-with-unemployment-and-debt/

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Debt Counselor

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Credit cards were established as a way of helping people gain credit. This means that you had been given a quantity of cash for you to spend, underneath the auspices that you'd repay it at the end of the month. This will show credit loan companies that you're accountable for your money and that you'll be able to make monthly obligations.

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Is Herman Miller a Cash King?

As an investor, it pays to follow the cash. If you figure out how a company moves its money, you might eventually find some of that cash flowing into your pockets.

In this series, we'll highlight four companies in an industry, and compare their "cash king margins" over time, trying to determine which has the greatest likelihood of putting cash back in your pocket. After all, a company can pay dividends and buy back stock only after it's actually received cash -- not just when it books those accounting figments known as "profits."

Today, let's look at Herman Miller (Nasdaq: MLHR  ) and three of its peers.

The cash king margin
Looking at a company's cash flow statement can help you determine whether its free cash flow actually backs up its reported profit. Companies that can create 10% or more free cash flow from their revenue can be powerful compounding machines for your portfolio. A sustained high cash king margin can be a good predictor of long-term stock returns.

To find the cash king margin, divide the free cash flow from the cash flow statement by sales:

Cash king margin = free cash flow / sales

Let's take McDonald's as an example. In the four quarters ending in June, the restaurateur generated $6.87 billion in operating cash flow. It invested about $2.44 billion in property, plant, and equipment. To calculate free cash flow, subtract McDonald's investment ($2.44 billion) from its operating cash flow ($6.87 billion). That leaves us with $4.43 billion in free cash flow, which the company can save for future expenditures or distribute to shareholders.

Taking McDonald's sales of $25.5 billion over the same period, we can figure that the company has a cash king margin of about 17% -- a nice high number. In other words, for every dollar of sales, McDonald's produces $0.17 in free cash.

Ideally, we'd like to see the cash king margin top 10%. The best blue chips can notch numbers greater than 20%, making them true cash dynamos. But some businesses, including many types of retailing, just can't sustain such margins.

We're also looking for companies that can consistently increase their margins over time, which indicates that their competitive position is improving. Erratic swings in margins could signal a deteriorating business, or perhaps some financial skullduggery; you'll have to dig deeper to discover the reason.

Three companies
Here are the cash king margins for four industry peers over a few periods.

Source: S&P Capital IQ.

As you can see, the struggling economy has hit Herman Miller and its industry peers hard. None of these companies meets our 10% threshold for attractiveness, and all of them have lower current margins than they did three years ago. Mohawk Industries has the lowest margins of the listed companies, with massive reductions in its margins from five years ago.

Despite the struggling economy, Herman Miller and Knoll, on the other hand, offer margins above 5%. Also, as the economy has started to improve, so have Herman Miller's sales and earnings. In June, the company saw a 37% jump in sales and its earnings more than doubled. Product orders were also up 21%, and the company expects to see good news into 2012.

Knoll's 2.7% dividend yield far outperforms Herman Miller's very modest 0.4% dividend yield, but the other listed companies do not offer a dividend at all.

Herman Miller still has plenty of work to do to improve its financials, including reducing debt and hopefully boosting its dividend above its current token payout. Most of its competitors have much higher dividend yields. If it can keep up its recent earnings momentum, though, Herman Miller could quickly move much closer to perfection in the years to come.

The cash king margin can help you find highly profitable businesses, but it should only be the start of your search. The ratio does have its limits, especially for fast-growing small businesses. Many such companies reinvest all of their cash flow into growing the business, leaving them little or no free cash -- but that doesn't necessarily make them poor investments. Conversely, the formula works better for slower-growing blue chips. You'll need to look closer to determine exactly how a company is using its cash.

Still, if you can cut through the earnings headlines to follow the cash instead, you might be on the path toward seriously great investments.

Want to read more about Herman Miller? Add it to My Watchlist, which will find all of our Foolish analysis on this stock.

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Source: http://www.fool.com/investing/general/2011/12/11/is-herman-miller-a-cash-king.aspx

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Bulls Board JetBlue Options For Rapid Ascent, Bears Bet DuPont?s Slide Has Legs

Bullish positioning in JetBlue observed earlier in the week continued Friday on signs the air carrier will have a busy holiday season. Shares in the airline are currently up 5.9% to stand at $5.03 in early-afternoon trade.

Source: http://www.forbes.com/sites/greatspeculations/2011/12/09/bulls-board-jetblue-options-for-rapid-ascent-bears-bet-duponts-slide-has-legs/

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Asia Is The Engine Powering Ford Stock To $14

The company aims to serve the local markets by providing a full line-up of Ford brands to expand customer choice and by focusing upon improving fuel-efficiency, safety and smart technology to provide buyers a better bang for their buck. Our price estimate of $14 for Ford stock is around 45% above the current market price.

Source: http://www.forbes.com/sites/greatspeculations/2011/12/09/asia-is-the-engine-powering-ford-stock-to-14/

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WATCH: The Crosstown Rivalry Between Cincinnati And Xavier Turned Ugly After A Benches-Clearing Brawl


College basketball games typically run the entirety of forty minutes.

But Xavier’s 76-53 victory over crosstown rival Cincinnati was called with just 9.4 seconds remaining after players from both teams were involved in a nasty brawl.

It began when Xavier’s Dezmine Wells decided to end an argument by shoving Cincinnati’s Ge’Lawn Guyn to the floor.

The benches cleared and a struggle of “macho showmanship” ensued.

Replays also show that the Bearcats’ Yancy Gates unleash a vicious suckerpunch to the nose of Xavier’s Kenny Frease, dropping him to the floor.

Suspensions will surely follow.

Watch it here (video via @jose3030):

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