Private investment in cleantech means making choices among the various sectors – such as renewables, smart grid technologies, energy storage, and transportation technologies – and then considering the relative stage of companies within those sub-sectors.
The short-term uncertainty in the financial markets is likely to rise, and investors will likely be looking to raise liquidity, especially given the continued turmoil in the Middle East and North Africa and the trade deficit hiccup in China. That said, we do not expect the engine of global growth to stall anytime soon. We would view weaknesses in the equity markets as buying opportunities.
Fears have risen that the likes of the ECB and the Bank of England might join the queue of central banks in tightening mode, as higher than expected CPI readings help fuel upward moves in inflation expectations. We suspect that these fears are overdone. But, it does mean that inflation will remain center stage for the moment at least.
Corporate profits for firms in the S&P 500 have marched upward for six straight quarters from early 2009. Indeed, with the reports almost all in for the fourth quarter of 2010, corporate profits advanced 38% from the prior year. With this growth in earnings, we believe the value of equities remains attractive at 13.6 times forward estimated earnings.
If inflation is going to rise globally, it will most likely surface first in emerging market countries. But this also reflects why emerging markets are so attractive in the first place – their growth outlook is more robust and output gaps (where they exist) are closing much more rapidly than in the developed world.
Absent further escalation of tensions in the Middle East and a more significant spike in oil prices, the global economic expansion will likely remain intact and the financial markets should regain their footing. An equity market decline, if it were to occur, may ultimately prove to be another buying opportunity for investors.
Internal conflicts in Egypt, Tunisia, Bahrain and Libya have increased political risk and negative economic costs, warranting downgrades in sovereign debt ratings and continuing negative outlooks. But political change could ultimately be positive since governments with greater legitimacy tend to be more resilient to economic and other shocks.
An annual inventory of belongings in the home is vital as a safeguard, should loss occur. Yet many families ignore this need. Some inventory options include hiring a firm that specializes in this, going room by room with a movie camera, and keeping a photo log of items. Make sure fine art, jewelry and silver are scheduled on a personal property policy.
If the private sector cannot stand on its own legs on June 30, when the second round of quantitative easing is expected to end, the QE policies will have been a colossal flop. Bond yields and stock prices are resting on an artificial foundation of QE II credit that may or may not lead to a successful private market hand-off and stability in the currency and financial markets.
We recommend a baseline allocation in our asset allocations in terms of stocks versus bonds and cash, but we also recommend the following tactical allocations: leveraged loans within the bond allocation, dividend-focused stocks within the U.S. large-cap stock allocation, and an allocation of 55% value and 45% growth within U.S. large-cap equities.