Analyze the Analysts Part 3

I was going through the manuscript of the book I wrote last year when I came across this section which I wrote on  how to analyze an analyst. These analysis were done at the start of 2013 and it is so very interesting to see how far off these predictions can get. Now that it is 2014 and we now know the verdict, let's review what these experts said about 2013. Feel free to make your comments on the Facebook or on the blog. This is Part 3 of the series.

The Bull, the Bear & the Base Case for 2013

By Matt Nesto | Breakout – Fri, Dec 28, 2012 8:06 AM EST

It's that time of year again when we're counting down the final days of 2012 and busy making plans and predictions for what lies ahead for the New Year. Eve n luminaries such as Thomas Jefferson got in on the action, presciently declaring nearly 200 years ago, "I predict future happiness for Americans if they can prevent the government from wasting the labours of the people under the pretense of taking care of them."

In the great scheme of predictions, Jefferson's forecast was not only plausible but was as much a reflection of his core beliefs as some sort of attempt to gauge the future. To that extent, Jeff Kleintop, the chief market strategist at LPL Financial, has taken his crystal ball out of the attic and is once again looking into the future. He joined us on Breakout to lay out his road map for 2013.

"It's a bit of Groundhog Day," he says in the attached video. "A lot of this looks the same [as 2012] with valuations fairly low and earnings growth pretty sluggish as well," he explains, outlining the reasons why he has more confidence in his base case outlook than his bull or bear scenarios. "So in that environment, it's hard to see a big stock market rally but its equally hard to see a big bear market as well."

Bottom line, he's looking for lukewarm, low single-digit returns for stocks and bonds next year, with a bias for cyclical in the first-half and defensives in the second-half.

Specifically, he expects a fiscal cliff resolution rally, more follow through on the real estate recovery front, as well as some modest advances in hiring and consumer spending to keep things moving blissfully along for the early part of the year.

That all changes, Kleintop predicts, as we move into the second half of 2013. "All those concerns come back again," he says, regarding debt and deficit and worries, and concerns about slowing growth and earnings.

As far as allocation goes, Kleintop favors cash and emerging market growth exposure that comes with large cap multinationals. More broadly, he's a buyer of foreign stocks too, saying "it's really about China's return to growth." It's a factor he says will have a positive ripple effect on the region and the world.

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This is what we call a half bucket analysis, whereby you sit on the fence and will be somewhat correct if the market either goes north or south. However, in this case, he is almost wrong on all counts. US stock delivered a double digit returns rather than single digit. Bonds delivered negative returns, rather than single digit returns. Putting money in cash is totally a mistake, as the US market did well. Emerging market exposure also did not pay off, as emerging markets delivered negative to flat returns. It's a bad bad bad prediction! 

I deliberately picked 3 analysts who is positive, negative and neutral on the financial markets. Even the one who got it correct (Part 2) had part of his prediction wrong. So, my advise for consumers who are depending on the advice of these experts: Take them with a pinch of salt.