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DOW FINISHES YEAR UP 5.5 percent FUELING HOPE FOR 2012 REBOUND
Gary B. Smith: I think the underpinnings are there as opposed to what many people think. I think we'll have a very good year in 2012. Unemployment is not great, but it's at least leveled off. Housing, the other big part of this equation, was up over 9 percent in November. Households have a lot of cash on hand; debt levels compared to household net worth are the lowest they've been in 20 years. Companies have a lot of cash on hand, so the green sprouts. I think we can start using that in reality for a really terrific 2012.
Tobin Smith: Let's look at our economy. There are pieces of our economy that are doing fabulously. Obviously, the gas revolution has added about 150 jobs the last 12 months. That's a big positive. So the growth that we traditionally got which was from health care and from government is not going to be there because of Obamacare and things and where we're going to get it is in real businesses. I think the glimmer of hope that we're missing is that there's some real businesses that build real stuff that sell all over the world and that have real high value. Those are the things that are growing.
Jonas Max Ferris: We're not going to get any tax increases in all likelihood this year. All the temporary stimulus programs are going to stay in place and there's nothing on that side that's going to derail this slow recovery. Our economy looks really good compared to the rest of the world right now. This includes emerging markets. Many of their markets are down 20 percent this year. We look good compared to Europe; we look good compared to Japan. It's not a great economy, but it's relatively good and that brings capital into your country. It keeps your cost of capital low. You could borrow it at low costs-both to buy a home or for the government or for corporations. It should drive things along and continue like this.
Todd Schoenberger: If all these things were true, the market would have been up about 5,000 points this month and that definitely wasn't the case. You have to look at history alone and that's what economists are going to be focusing on going into 2012. First of all, the GDP rate; we had a 1.8 percent print, but the year-over-year rate is a 1.6 percent. If you go back to 1948, the first year that government could compute gross domestic product in this country, any time the year-over-year rate dips below 2 percent the U.S. economy always ends up in a recession. Then you think about all that debt that's out there. Yes, there has been some deleveraging on the household balance sheet, but realistically, people still have a tremendous amount of debt. Therefore, they're not saving and they're not going to spend the way we want them to spend and therefore boost the economy. We are in for tough times next year.
Mike Norman: It's an election year and politicians are going to do everything necessary to make things good. The problem is, what they think is the right prescription-cut backs, spending cut backs, fiscal contraction-that's not the stuff that you see big booms and recoveries come out of. So, I think we're going to see a lot of what we have seen in 2011. We're going to see weak growth. We're not going to see much improvement on the employment and jobs side. I think we're going to see a choppy sideways market through 2012, so it's going to be frustrating for a lot of people. It's clearly going to be frustrating to people who are looking for jobs because there's not going to be a big job boom. It's going to be frustrating for investors, as well. That's probably the best we can hope for.
TAXPAYERS FOOTING THE BILL FOR GOVERNMENT WORKERS PENSION PERK
Gary B. Smith: Here is the problem I have with this. If it works out against the taxpayer and there's a huge upside they have to pay out, unlike a company, the public gets the backstop. That's the problem. The public could be on the hook for millions of dollars. I don't mind the program if the public wasn't involved, like when a private company wanted to do this. That's where I think you have to draw a line in the sand.
Tobin Smith: What's amazing is that people are having a hard time understanding why we're cynical about our leadership and then we bring something like this up, which is egregious in multiple ways. Number one, the math doesn't make any sense and number two, this is a sense of entitlement. They came up with this idea from topping up your mileage from your air card. The idea that you could sneak this under the rug and pay this and nobody did the math is the epitome of everything that makes us go nuts in this country right now.
Jonas Max Ferris: Half of the S&P 500 probably has the math wrong on their pension as to what they estimate their returns to be on their pension, so it's not just the government. This could just as easily turn and work in the benefit of the taxpayers in the state if we had massive inflation and/or the stock market took off. Then, all of a sudden, 75,000 now for 323,000 for a lifetime is going to seem like a bad trade off. The bottom line is you need to fix the calculations. That's all that's wrong with this. They are estimating too high a return, as are some corporations in America. They need to have people pay in more to get these benefits. If it's done right, it would be net-net whether or not you did it, because the math would be straight.
Todd Schoenberger: I don't know how this will alleviate the pressure for the younger generation to come in. When these pensions are this much, about half a million dollars a year-the same program here in Philadelphia they're guaranteeing 4 percent or 5 percent interest. It's clear to me that nobody from Wall Street or any other bank with half a brain would have predicted that or guarantee a 4.5 percent per year. So, when you think about those local municipalities and the pressure on those finances, how is it that they can actually hire again? I don't see where the money is coming from.
Mike Norman: This is the same thing as insurance or an annuity. You pay now to collect something later on down the line. It's all based on actuarial and it's also based on predicted rates of return in the investments that that money is going into. The problem is, nobody can or did predict ten or twelve years ago when these things started to come into effect, that we were going to have the worst economic down turn since the 1930's and that the stock market would have done nothing over that ten year period. It happens to be exactly the same thing as if an insurance company does not have enough in premiums to pay out after a natural disaster like a hurricane or an earthquake. That's unpredictable as well. The fact of the matter is, people paying in to receive early retirement-there's nothing wrong with that-in fact it frees up the labor force for young workers who want to come in. The problem is the economy has been stagnant for a long time and these investments did not pay off. It is not a bad program.
2011 SCOREBOARD
Gary B. Smith's best 2011 pick: Master Card; picked 4/2/2011; up 47 percent since then
Gary B. Smith's worst 2011 pick: Goldman Sachs; picked 6/4/2011; down 33 percent since then
Tobin Smith's best 2011 pick: Digital Realty Trust; picked 9/24/2011; up 26 percent since then
Tobin Smith's worst 2011 pick: Micron; picked 1/1/2011; down 22 percent since then
Jonas Max Ferris' best 2011 pick: Petrohawk; picked 4/2/2011; up 58 percent since then
Jonas Max Ferris' worst 2011 pick: Sprint; picked 7/9/2011; down 57 percent since then
2012 PREDICTIONS
Gary B. Smith: Amazon has a 40 percent profit in 2012; Dow will be at 14,700 in 2012
Tobin Smith: Taiwan Semi Conductor doubles in 2012; DOW will be at 12,800 in 2012
Jonas Max Ferris: JP Morgan 30 percent gain in 2012; DOW will be at 13,000 in 2012
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