John Manley

Two things to believe in

AdvantageVoice® Blog—5-6-13
John Manley, CFA, Chief Equity Strategist

“Our life is frittered away by detail. Simplify, simplify, simplify.” —Henry David Thoreau

If Thoreau really wanted to simplify things, why did he repeat the word twice? Regardless of that, I think it is good advice, especially in our business. Analysis should be simple and straightforward, not simplistic or convoluted. It requires a fairly good understanding of a topic to strip away the nonessential and get to the core of the matter. I think that is particularly true of an analysis of the general direction of the market over the next 12 to 18 months.

There are some really big issues out there: Will Europe slide into a Great Recession? Will China finally prove the perennial skeptics right and collapse in a heap of overbuilt ruins? Will the Japanese central bank succeed after 20 years of failure and restart the machine that was the Greater Asia Co-Prosperity Sphere? Can S&P 500 earnings grow when profitability is near record levels and revenue growth appears to be grinding to a halt? Can America possibly deal with federal debt levels that, as a percent of gross domestic product, are approaching heights seen after World War II?

I am happy I set out to be simple and not smart, because I don’t think I’m smart enough to offer a definitive answer to any of these questions. However, I am comforted by my belief that, probably, no one else will be able to reasonably provide convincing answers to these riddles to the marketplace over the next year or so. I think it is just too soon for any of us to prove that things will be headed one way or the other. The forces of evil may be powerful, but the forces of good sure do seem to have a lot of money behind them.

In a way, I think the very inscrutability of the outcome may be the best argument to own stocks over the intermediate term. I do not think we will know for sure if the world’s central banks will be successful in restarting the world’s economies. On the other hand, I don’t think we will know for sure that they have failed. I am pretty confident that they won’t stop trying. They have all effectively said as much.

In such a scenario, I believe that markets will experience positive monetary pressure without an economic calamity to offset it. While pangs of anxiety may surface at anytime throughout the globe, unless they spin out of control, they should only be interruptions in an upward bias for equities.

Perhaps the answers to the big complicated questions will have to wait a couple years to be answered. I think the two questions that investors should be asking now are a lot simpler:

  1. Will the world’s central banks continue to push money at the world’s economies?
  2. Will anyone be able to prove that those efforts have definitely failed?
If you believe that the answer is yes to the first question and no to the second, then, no matter what your beliefs about the ultimate outcome, you should have some money at risk in the equity market today.

The views expressed are as of 5-6-13 and are those of Chief Equity Strategist John Manley, CFA, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.


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