Malkiel's "Where to put your money in 2012"

MJG

Hi Guys,

Early January is the honored time to forecast market returns for the coming year. There have been many such forecasts already logged on MFO.

I have a remarkably poor record in the forecasting arena so I will not waste your time nor confuse you with my own unreliable projection.

Instead, I offer you access to Professor Burton Malkiel’s fearless forecast. He registered his hazardous predictions in the Wall Street Journal a few days ago. Here is the Link to “Where to put your money in 2012”. Enjoy.

http://online.wsj.com/article/SB10001424052970203462304577134772867322582.html

Basically, Malkiel remains very optimistic with regard to China. His assessments favor a regression-to-the mean philosophy. He anticipates rapid recoveries for last year’s disappointing investment classes. As always he advises tight cost control, especially since he projects muted returns in several investment categories.

Stay firm; stay with your strategy; stay the course.

Best Regards.

MJG

Ted

Dear MJG: Always interested in the Professor's thoughts, but you must be a subscriber to WSJ to read your link. However, I did Google the title of Malkiel's article in order to read.
Regards,
Ted

[Deleted User]

thanks for the link

catch22

Don't know if this is the full story, as WSJ; as I am not a subscriber to WSJ. I suspect this write at least provides his overview. I'll throw in my inflation adjusted 2 cents worth at the >>>>>'s.

Burton Malkiel: US Stocks Are Better Buy Than Bonds
Friday, 06 Jan 2012 06:59 AM

Economist and author of A Random Walk Down Wall Street Burton Malkiel says U.S. stocks should produce returns about five points higher than the yield on safe bonds.

"If an investor buys a 10-year U.S. Treasury bond and holds it to maturity, he will make exactly 2 percent, the current yield to maturity," Malkiel writes in The Wall Street Journal. "Even if the inflation rate is only 2 percent, the informal target of the Federal Reserve, investors will have earned a zero rate of return after inflation."

>>>>> If one chooses to buy and hold, yes. Does he presume this is what most investors would do?

The dividend yield of the U.S. market is about 2 percent, notes Malkiel, and, over the long run, earnings and dividends have grown at 5 percent per year.

"Thus, with no change in valuation, U.S. stocks should produce returns of about 7 percent, five points higher than the yield on safe bonds," says Malkiel. "Moreover, price-earnings multiples in the low double digits, based on my estimate of the earning power of U.S. corporations, are unusually attractive today."

>>>>>I suspect there may be more earnings surprises to the downside going forward. While it is reported that many U.S. companies have piles of cash on the sidelines, many of these same companies also have large burdens of debt. One may suspect current accounting standards may favor such a position; but would it not also be favorable to reduce corporate debt burden?

With a higher inflation rate, U.S. Treasurys will be a sure loser, says Malkiel. Other high-quality U.S. bonds will fare little better.

>>>>>This is a possibility. Although U.S. Treasury's is too general of a term. I presume that he is aware of the over subscription of TIPS bonds recent auctions.

“The yield on a total U.S. bond market exchange-traded fund (ticker BND) is only 3 percent, Malkiel says. “Bonds, where long-run returns are easy to forecast, are unattractive in the U.S. and Japan, as well as in Europe, where defaults and debt restructurings are likely.”

>>>>>Long-run returns are easy to forecast? Wishing that I was so prescient. Again, for bonds; only the yields are mentioned, with no mention of the returns on the price. Oh, well; this is a most common comment among the tv talking heads, too. I may suppose these folks look at the true negative yields and think "what the heck"; but apparently fail to consider why a yield is low or negative..........duh, folks are buying.

Malkiel believes that emerging markets offer the best prospects for both equity and bond returns over the next 10 years.

>>>>>The small staff at this house does not have the ability or forecasting software to be able to make such a statement.

Whatever the specific mix of assets investors choose, they will do well to control the thing they can control: their investment costs.

“That is especially important in a low-return environment,” says Malkiel. “Make low-cost index mutual funds or ETFs the core of your portfolio and ensure that any actively-managed investment funds you purchase are low-expense as well.”

>>>>>Can't argue with this, eh? 'Couse, if folks are using these vehicles; then they won't be holding those junkie Treasury's to maturity, they'll unload IEF or similar, when the time arrives...........this would work, eh?

CNBC reports that near-zero interest rates aimed at pushing investors out of bonds and into stocks appeared to gain some traction as 2011 drew to a close, raising hopes that investors are ready to take on more risk.

>>>>>Is this really what ZIRP is all about? One suspects the current Fed. policy is much more complex than this. The Fed and other gov't. folks/departments are not displeased with continued bond buying..........cause when the buying stops, and interest rates rise.........the cost of government will go through the roof.

OK...........I feel better now and will step down from the soap box.

Y'all take care,
Catch

MJG

Reply to @Ted:

Hi Ted,

I do subscribe to the WSJ.

At the time of my posting, I checked and the story appeared to be accessible to the general public. My error.

Thanks for the heads-up.

MJG