The occasion was the Club's 18th Annual Investment Outlook, attended by several hundred people at Toronto's Fairmount Royal York Hotel. The presenters were Stephen Harris, head of research, Macquarrie Capital Markets; Nick Barisheff, president of Bullion Management Group; and Fred Sturm, executive vice-president of Mackenzie Financial and an expert in natural resource stocks.
Overall, their views on the coming year varied but the common denominator was their agreement that the price of gold will move higher in 2012. Here is a summary of their comments.
Stephen Harris. While acknowledging that it will not be an easy year, Mr. Harris predicted a modest rebound in the stock markets with all of the growth coming in the first half. He identified five themes that he believes will predominate in 2012, as follows:
Deleveraging. We are in a long-term deleveraging cycle with governments, financial institutions, and consumers are all seeking to shed debt. This process, by definition, ends up being a drag on growth. He does not foresee a Japanese-style scenario for the U.S. but says it will be a "long, slow grind".
Sovereign risk. The difficult position facing many governments severely limits their ability to respond to economic weakness with fiscal stimulus. The money just isn't there. As a result, monetary policy will be accommodative for many years. He predicts U.S. interest rates will remain at current levels until at least 2015 "and a case can be made for 2020". This will be good for gold but bad for financial institutions because low rates compress spreads.
Widening growth gap. The rate of GDP growth among developing nations will continue to outstrip developed countries and the gap will widen. Over the next five years, the International Monetary Fund predicts that developing countries will contribute 70% of global growth.
Synchronized easing. Central banks will act in concert to cut interest rates and/or employ quantitative easing. Falling inflation will facilitate this; he sees the U.S. inflation rate below 2% by spring while China's will fall to less than 3%.
Strong corporate profits. Mr. Harris said that profits of non-financial companies in the U.S. are at 60-year highs and predicted a further 7% rise for S&P 500 companies this year - "and that could be conservative".
His bottom line: Single-digit returns for stocks over the next few years, with the TSX hitting 15,000 by June and then pulling back to 13,500; gold (his top pick) at US$2,500 by year-end; and oil at US$120. He advises emphasizing resource stocks in the first half of the year and then rotating back into defensive issues such as utilities in the second half.
Nick Barisheff. As you might expect given the business he is in, Mr. Barisheff is also bullish on gold but for somewhat different reasons. He ties the rise on the gold price directly to the increase in government debt and showing a dramatic chart that illustrated how the two are moving in lock-step. "Gold is not rising in value," he said. "Currencies are losing their purchasing power in relation to gold."
Mr. Barisheff, who has written a book titled $10,000 Gold which will be published later this year by John Wiley and Sons Canada, said that if the unfunded liabilities of social security and Medicare are included real U.S. debt would be more than $120 trillion - more than $1 million per taxpayer. He called the accumulation of government debt "an unstoppable descending spiral".
He concluded: "It doesn't matter whether gold ends 2012 at $2,000 or $2,500 because gold's final destination will make today's price seem insignificant."
Fred Sturm. His main theme was that 2012 will see us "move from a year of high uncertainty to a year of more certainty". That doesn't mean everything is going to be fine - only that we will be more comfortable about knowing what is to come.
In this context, people should start taking a longer-term view in making investment decisions, Mr. Sturm advises. Put the percentage of your assets you are comfortable with into safe securities and invest the balance for the long term. Stocks are a good choice, as he believes market valuations are low at present. Precious metals will continue their upward rise as long as interest rates stay low.
He did not set any specific targets for 2012 but simply advised the audience to "go into the year with reasonable prudence but adequate hope".
It's interesting to note that none of the speakers predicted an economic collapse and a market meltdown in 2012. Even Mr. Barisheff avoided going that route despite his grave concerns about rising government debt. As Mr. Sturm put it, referring to the year ahead: "It ain't great but it's not 2008."
Let's hope he's right.