Whether you jump off a fiscal cliff, shoot at lame ducks, sail on the QE3, or just try to pick

winning stocks, the second half of the year promises to be an adventure. Consider our midyear update -- distilled from phone conversations with all 10 members of the Barron's Roundtable -your guidebook to the wild and possibly crazy months ahead. As you'll soon learn in detail, the investment legends on our panel are plenty worried about the state of the world, in particular Europe, where sovereign debt woes could lead to more bank failures and mounting investment losses. They are concerned about China's slowing economy, as well, and the so-called fiscal cliff in the U.S. -- namely, the one-two punch of automatic tax hikes and spending cuts that will take effect next year unless Congress reaches an agreement by the end of its lame-duck session to delay or rescind them. Most of our pros expect the Federal Reserve to launch a third round of quantitative easing, or Treasury-bond purchases, in an effort to juice the economy and rouse the somnolent job market. But they don't expect that to do the trick. The most worrisome issue, however, is the one that Felix Zulauf describes: The industrialized world is burdened by a calamitous amount of debt. In the next 12 months, he warns, the financial system is at risk of collapsing. If you're still reading, you will also find lots of sound advice throughout these pages on stocks, bonds, currencies, and gold. The consensus among our experts is to stick with companies that have good businesses, savvy managers, healthy balance sheets, and low valuations. Preferably, they also pay dividends and buy back shares. It pays, too, to heed Meryl Witmer's words and fine example when wading into the market, especially at such a frightening time. Bring a sharp pencil, but leave your emotions home. ABBY JOSEPH COHEN What killed the market, Abby, and when will it recover? COHEN: We have seen a complete reversal of the first-quarter rally. In the U.S., the economic data is a little less sparkling. It is consistent with real growth in gross domestic product of about 2%. The big issue is Europe, which has sovereign-debt problems and problems with its banking system. The nations on the periphery are in recession. A newer concern is the Chinese economy. The economic data in China and other parts of Asia have gotten weaker. Export data have weakened, reflecting, in part, the slowdown in Europe. Also, it is a political season in the U.S. We are getting closer to the November election and the so-called fiscal cliff. In January only policy wonks were focused on the decisions a lame-duck Congress might make in December. Now investors around the world are aware. As a result of the selloff, markets offer good value. But value is not a timing device. Well said. Stocks are selling at low price/earnings ratios. Companies have strong balance sheets. But what is the catalyst that will turn low valuation into better performance? These circumstances are

frustrating for short-term investors. But long-term investors are starting to take advantage of the drop in stock prices because they see good value. Many companies in the Standard & Poor's 500 with strong balance sheets and lots of cash generation are buying back their shares. That doesn't rule out dividend increases as well. Also, merger and acquisition talk is building. The yen has been strong, and it appears some Japanese companies are on the prowl to buy operating assets cheaply. Corporations are the ultimate value investors.

Abby Joseph Cohen's Picks

Company/Ticker Wells Fargo/WFC Pfizer/PFE Source: Bloomberg Any advice for the individual investor? Price 6/6/12 $30.97 21.91

Individual investors have had the stuffing knocked out of them more than once. They are feeling risk-averse. One concern in the intermediate-to-long term is that many risk-averse investors think it is safe to buy Treasury securities. I have confidence in the U.S. Treasury, but with interest rates this low, some people don't understand the arithmetic -- that they could lose a lot of money when rates start rising. Let's return to Europe. How will the crisis there unfold? Goldman Sachs' European analysts have said for a long time that Europe will muddle through. They believe there is the political will to preserve the European Union. It is possible that a very weak participant will leave, but the EU won't collapse. But there will be an extended period of disappointing economic growth. Germany has revamped its economy in the past decade. The rest of Europe needs to make significant improvements in education, training, and infrastructure so that labor productivity can rise. We are talking about a 10-to-20-year workout. In the U.S., a big fiscal-policy discussion has to happen between two parties that aren't particularly cooperative with each other. Our economics team expects some sort of compromise. It would be better for the economy to have this discussion sooner rather than later. Looking back, we can see that the debt-ceiling debate last summer had a significant negative impact on consumer and business confidence and investment spending, in addition to the damage it caused to the financial markets. What is your early read on 2013? We don't see robust growth, but an ongoing economic expansion with gradual improvements in employment and profits. Earnings will hold up because U.S. companies conduct business all over the world, and many S&P 500 companies focus on high-value-added goods and services. They

tend to have better revenue and earnings than the economy overall. We are expecting mid- to high-single-digit profit growth. One thing we're happy about is the addition of two capable new governors to the Federal Reserve Board, bringing it back to full strength. The Senate just confirmed the appointments of Jerome Powell, an investment banker and lawyer, and Jeremy Stein, an MIT-trained economist and Harvard professor. The regulatory environment is changing, and it is good to have people at the Fed who understand the impact of regulatory changes and which are most likely to be effective. Good point. How about some stock picks for the second half? Our analysts like Wells Fargo [ticker: WFC]. Financial stocks were among the best performers in the first quarter and among the worst in the second. Wells has a commanding market share in several areas, including a 41% share of the mortgage-finance business, up from 23% in 2010. The bank has emphasized this business, and some competitors have reduced their exposure to mortgage finance. Wells has shown good discipline on the expense side. Also, it localizes risk management in individual business lines. The stock trades for 9.5 times this year's expected earnings and yields 2.7%. Return on equity is 12%. Pfizer [PFE] has been reformulating its business. It has been selling off businesses in which it doesn't have a competitive advantage, such as nutritional products. The stock sells for 10 times this year's expected earnings and yields 4%. How is Pfizer's new-drug pipeline? Investors have been waiting for Pfizer to prove again that it can generate interesting new drugs. A Food and Drug Administration panel recommended approval of a new Pfizer treatment for rheumatoid arthritis in May. Pfizer had $26.5 billion of cash at the end of 2011. Management has said it wants to return the money to shareholders. Our analysts think the company will buy back $4 billion or $5 billion of stock this year. Pfizer might make some strategic acquisitions, as well. Thank you, Abby. FELIX ZULAUF Is there a good word from Europe? ZULAUF: Adjusted for inflation, Italy trades at levels last seen in Mussolini's era. Greece trades at 1.5 times the Shiller P/E ratio [the market's current price divided by the past 10 years' inflation-adjusted earnings]. Most European markets are good value but that doesn't make you any money. The structural framework is wrong and cyclical dynamics are still pointing down. Structural? Cyclical? Please explain.

There is too much debt in the industrialized world and the financial system is virtually bust. Real disposable personal income is stagnating or declining. Employment participation keeps heading south. This produces a chain reaction: Weaker consumer demand in the West weakens manufacturing in places like Asia, which weakens natural-resource producers such as Australia or Brazil. As for the euro, it is a misconstruction. As I said in January, I expect the disintegration to begin in the second half of this year. That should lead the world into financial and economic chaos. My two major themes into 2013 are euro disintegration and China weakness, due to the bursting of a real-estate boom. Sounds like a fun year. The global economy is weakening cyclically on top of a highly fragile credit system. It is an explosive cocktail. The tower of debt is compounded by the gigantic over-the-counter derivatives market. In the past 10 years the notional value of derivatives worldwide has grown from $100 trillion to almost $800 trillion. The numbers are mind-boggling. If something goes wrong in the real economy, it could shake the whole credit system dramatically. It is a dangerous situation. Investment/Ticker Cash LONG Gold (spot price, per ounce)* Australian 3-Year Bond Future** SHORT iShares MSCI Emerging Markets Index Fund/EEM *Buy when gold prices fall below $1,500. ** September 2012 contract. Source: Bloomberg How will policymakers react? They have exhausted a big part of their resources. Governments around the world have realized they carry too much debt and need to tighten fiscal policies. Even the U.S. will wake up to this after the election. Monetary policy, or so-called quantitative easing, doesn't produce economic growth, given current systemic circumstances. But it may prevent the credit system from imploding, if provided in massive quantities. So what will happen next? The euro is not the real problem but a trigger and compounder of the structural problems. It could only work if the euro zone entered a fiscal and political union, which won't happen, as Europeans aren't prepared to give up national sovereignty. Politicians therefore will go from one Price 6/6/12

$1,619.30 Yield 6/6/12 2.25% $38.03

compromise and quick fix to the next, with the crisis deepening until some nations at the periphery won't be able to stand the economic pain anymore. They will want their old national currency back, and devalue to adjust the external accounts. China won't be able to save us, as it did in 2009. The Chinese will lower interest rates but their actions will be reactive and lag. If my thesis is right, we must assume things will go awfully wrong in the next 12 months and the system will be at risk of collapsing. Most U.S.-focused investors might not understand it as they see corporations doing well. How bad will things get? The potential exists for a broad-based nationalization of the credit system, capital controls and dramatic restrictions on financial markets. Some might even be closed for some time. Good heavens! We are witnessing the biggest financial-market manipulation of all time. The authorities have intervened more and more, and thereby created this monster. They might change the rules when the game goes against their own interests. We are in a severe credit crunch. It starts when the weakest links in the system can't finance their activities. Then you have a flight to safety into Treasuries and German bunds, compounded by a quasi-shortage of good collateral. That's why bond yields have fallen so low. This isn't an inflationary environment but a deflationary one. How will the U.S do in your scenario? On a relative basis, the U.S. could do best. It has more of an affinity for freedom than socialistminded Europe, and if the U.S. is clever, it could become energy self-sufficient by developing natural gas and shale oil. What is an investor to do in the face of this unpleasant news? I am sticking with my January recommendations. In the short-term, equity and commodity markets are making a low. They are oversold. The euro zone will come up with new quick fixes later this month and markets will attempt to rally. But I see a cyclical bear market continuing well into 2013. I would hold lots of cash, preferably in U.S. dollars. While I expected Treasury yields to hit bottom in the fall, I would take some profits and not buy new bonds. Sell the rest in the fall, and use a stop-loss order to protect profits if you bought the 10-year when it was yielding 2.20% in January, as I recommended. Stick with Australian three-year government bond futures. This is a direct bet on China's weakening, and short-term rates could fall further. I also continue to recommend buying gold if it breaks below $1500. That could lead to a quick shakeout into the $1300s, but gold will offer protection in coming years because it is true money.

Do you see any opportunity in equities? Only on the short side. I would continue to short the EEM, or iShares MSCI Emerging Markets index fund, which is a bearish play on stocks as well as currencies. Thank you, Felix. MERYL WITMER How is the market treating you, Meryl? WITMER: Pretty well before May. A lot of our stocks are cheap. The exodus from the market has created bargains. You have to stay unemotional and analytical, and try to find companies that, in the long run, will generate free cash and increase in value. Usually, when stocks get cheap like this, things get better. There is also the possibility of a change in leadership in the U.S. If it looks like [Republican presidential candidate Mitt] Romney is going to win, people could get bullish. Will the market tank if Romney looks to be losing? Much will depend on the congressional elections. Valuations are good and in the end should provide support. Many people are short-term oriented. But when you are investing you are buying part of a company, and a good test of the validity of the investment is whether, if the market were to close for 10 years, you would still be happy owning that company. You can have all kinds of emotions about the market and individual stocks, but if you buy a great business with excellent managers who allocate capital carefully, you will make money in the long run. How does the economy look to you? The economy will have a tail wind from increased domestic oil and gas production. That will be a big driver of growth. Manufacturing is being repatriated to the U.S. Retailers want a shorter supply chain, and with the cost of production increasing in Asia and high unemployment here, jobs are coming back. Also, unlike in much of Europe, you can run your business efficiently and lay off people if you need to. If businesses move back here and employment picks up, it becomes a virtuous cycle. Europe has to change its labor and benefits laws. Some European governments were bad parents. Their policies didn't foster a work ethic, and now many people feel entitled.

Meryl Witmer's Picks

Company/Ticker Gildan Activewear/GIL Phillips 66/PSX Source: Bloomberg Which great businesses are you buying? Price 6/6/12 $24.59 31.53

Gildan Activewear [GIL] is benefiting from retailers' search for shorter supply chains. It has 122 million shares and is trading for $24.50 a share. It has very little debt. They make T-shirts, sweatshirts, fleece for the wholesale market, and socks under the Gold Toe and other brands. The company is vertically integrated; it buys yarn and converts it into fabric at low cost in manufacturing plants in Honduras, the Dominican Republic, and Bangladesh, and then manufactures garments. Its main sales channel is the wholesale screenprint market, where its market share has grown organically in the past 10 years from 10% to 65%. With a recent acquisition, it will exceed 70%. Hanesbrands [HBI] just announced it is exiting the U.S. wholesale market. That is another plus for Gildan. Cotton prices spiked last year. How did the company manage through that? The stock fell from the high $30s as cotton dropped to about 70 cents a pound after spiking to more than $2. Gildan's customers are small and the company decided to take the hit itself when prices plummeted. As a result it will earn about $1.30 a share in the fiscal year ending September, instead of $2.60. Next year, as the high-cost cotton moves out of their inventory, earnings should rebound to between $2.50 and $3 a share, and grow thereafter. Gildan has been perennially capacity constrained and recently completed a big addition that will increase capacity by 40%. If it can utilize that capacity in the next few years, earnings will be 40% higher, to $3.50 to $4 a share. How will they grow the business? They will be able to enter the national accounts channel, selling to non-retailer consumer brands like Nike [NKE] and Disney [DIS]. They will also increase sales of branded underwear, T-shirts, and fleece at retail, and grow sales internationally. Gildan also is moving into some performancetype shirts, which are more profitable. There could be some improvement in the branded-sock business. It is currently about break-even, but Gildan is moving production to its low-cost facilities. Gildan has a great management team that owns about $250 million worth of stock. In our research checks we discovered that several customers personally own shares. The company's production costs are 20% below competitors. A business of this quality could have a 15 price/earnings multiple, as opposed to a P/E of eight to 10. Gildan has the potential to trade between $45 and $60 a share. How about another name? Phillips 66 [PSX] was spun out of ConocoPhillips [COP] in April at $32 a share. It has three segments: oil-refining, chemicals, and midstream. The two nonrefining segments are worth roughly the current stock price, which is $31. The refinery business has sub-segments that, if recognized, would trade at much higher P/E ratios than the four to six times earnings refiners get today. The chemicals division consists of Phillips' 50% share of a joint venture with Chevron [CVX] called CPChem. The JV makes ethylene and polyethylene from ethane and naphtha. It has a

proprietary process that produces a higher-quality product at lower cost. It also licenses this technology to competitors. The business has an advantage in having 80% of its capacity in the U.S. because its main feedstock, ethane, is in oversupply. With increased production of natural gas and the build-out of fractionation plants to separate ethane and other liquids, the price has fallen dramatically. CPChem sells into the world market, where competitors are using higherpriced naphtha. It earns a healthy spread. What does that mean for Phillips? Phillips' 50% of PCChem could earn $1.30 a share this year. These earnings deserve to be valued at a 10 multiple, or $13 a share. The midstream segment owns and operates natural-gas processing facilities and fractionation plants, and a large and valuable natural-gas pipeline system. It also owns 50% of a master limited partnership. It should have free cash flow of $1.20 to $1.30 a share and about a dollar in earnings once it finishes up a couple of projects. It is worth 17 times free cash flow, or more than $20 a share. So you get the refining business free? Right. Refinery operations earned $4.17 a share in 2011 and could earn $3.75 in 2012. There are three segments. The specialty-marketing business, which operates gas stations, earns about $500 million after taxes. Then there is an extensive pipeline asset base separate from the midstream segment, which, if spun out into an MLP, could earn $400 million. Combined, these businesses earn about $1.40 a share and should have a trading value of $20. That leaves the basic refinery operation, which is over-earning. How so? Its midcontinent refineries use West Texas Intermediate oil as a feedstock, which is trading at a big discount to Brent crude, given the lack of capacity to move WTI out of Cushing, Okla., to the Gulf of Mexico. For at least a couple of years, until more pipelines are built, midcontinent refiners will have a big cost advantage. Then that will shift to the Gulf, benefitting Phillips' refineries there. The remainder of the refining business is worth at least $10 a share, and possibly much more. Add up the pieces and subtract $9 a share of debt, and you get a target price of $50 for Phillips. One more thing: I liked Brian Rogers' line from the January Roundtable that "the world doesn't end that often." People get caught up in worrying about big-picture things, but when valuations are cheap and the world population is growing, companies with good assets and low-cost production advantages, like Gildan and Phillips 66, will do well. Perhaps they will get cheaper, but you want to buy when you see a good price, not when you have perfect economic certainty. Good advice. Thanks, Meryl. BRIAN ROGERS Is the year playing out as you expected?

ROGERS: Pretty much. Most of the economic underpinnings suggest a continued, modest recovery. Investors gradually have regained confidence, and the S&P 500 rose about 12% before its recent setback. You could argue the market was fairly extended after its big advance. I didn't think Greece, and Europe generally, would re-emerge as such a critical issue. I thought the Greeks would behave better. There is concern about growth in China, and Brazil's problems have surprised me a bit. Now everyone is talking about the fiscal cliff, but I believe sanity will prevail in Washington. The payroll-tax cuts probably get extended. I assume the Republicans retain control of the House and gain control of the Senate, and that President Obama is re-elected. President Clinton moved to the center in his second term, and Obama will do the same. What do you see for Wall Street? The market probably will have two more risk-on, risk-off trading cycles this year. It will be higher at year end than now. It could be up more than 10% this year, which would argue for a 5% gain in the second half. You can't buy the 10-year Treasury here. We won't have a third round of quantitative easing. Bernanke has been vocal about keeping rates low, but we don't need it. We have to take the training wheels off the bike at some point and see if we know how to ride. Emerging markets offer great opportunities. It is best to buy them through an emerging-markets fund. Those markets all have higher expected growth rates than ours in the next few years, and valuations are pretty compelling, even in Brazil. What is ailing Brazil? The banks have had credit issues. Foreign capital has been flowing into the Brazilian economy in a global grab for yield, which has been disruptive. Now the currency is weakening so there will be capital outflows. Commodity prices also are under pressure.

Brian Rogers' Picks

Company/Ticker Emerson Electric/EMR JPMorgan Chase/JPM Thermo Fisher Scientific/TMO Microsoft/MSFT Juniper Networks/JNPR Murphy Oil/MUR Source: Bloomberg Price 6/6/12 $45.94 33.07 50.11 29.35 17.48 46.92

In fixed income, I like the credit spreads on high-yield bonds because credit conditions are favorable. Yields are about 600 basis points [six percentage points] above Treasury yields. In stocks, we like good companies with low valuations, good dividend yields, and good dividend-

growth prospects. Earnings estimates could be under pressure in the second half, not from cost pressure but revenue pressure. Care to update your stock picks? We like our January picks, although I am removing Ingersoll-Rand [IR]. Nelson Peltz's Trian Fund Management established a stake in the company recently and said it will seek ways to maximize shareholder value. The stock popped higher. Emerson Electric [EMR] took 2012 earnings estimates down to the $3.35 to $3.50 range. It continues to buy back shares and could earn $4 a share in the fiscal year ending September 2013. They are 35% exposed to emerging markets, which has been a head wind, but the valuation is attractive. JPMorgan Chase [JPM] is my biggest disappointment. You're not alone there. It lost 10 times in market value what it suffered in losses from its recent trading error. The shares are trading around tangible book value, but earnings will still be strong. Thermo Fisher Scientific [TMO] had good first-quarter earnings and continues to buy back stock. It operates in good business niches and sells for 10.5 times earnings. Microsoft [MSFT] reported good earnings and its shares are also inexpensive. The company will raise its dividend this year, perhaps to $1 a share from 80 cents. It yields 2.8%. Juniper Networks [JNPR] is down $3 a share since we met in January. But I hate to sell things when they are down, especially as the fundamental case continues to build. Subtract the company's approximately $5 a share of net cash and the P/E multiple is low. Do you have any new recommendations? Murphy Oil [MUR] gets little attention. The company has a $9 billion market capitalization and little debt. It sells for less than 2.5 times Ebitda [earnings before interest, taxes, depreciation, and amortization]. Shares are at $47, down from $100 several years ago. You get 2.3 barrels of oil equivalent for each share. Murphy is a midsize global oil and natural-gas exploration and production company. It has a refining business but is getting out of the marketing business. It is based in Arkansas. There is significant family influence, but not control, and the stock is inexpensive relative to many large-capitalization energy companies. Murphy will probably earn $5.75 a share this year. It yields 2.5%. People are worried about oil prices falling but a lot of the concern is reflected in the shares. Oil has come down as the global economy has weakened, but as soon as growth expectations pick up for emerging markets, the price will rebound. Thanks for the update, Brian. SCOTT BLACK

What do you make of the market, Scott? BLACK: The S&P 500 trades at 12.4 times my estimate for 2012 profits: $103, up from $96.44 last year. The market is cheap by historical standards, especially with today's low interest rates. Also, corporate balance sheets have more than $2 trillion of cash. That's it for the good news. The U.S. economy is sputtering. The consumer accounts for 70% of the U.S. GDP, and consumers are in trouble. Personal income is up just 2.1% year over year, and personal consumption is up 1.8%. Inflation is 2.3%, which means real income is negative. The only way people can defend their standard of living is by withdrawing savings, and the savings rate has fallen to 3.4% from 4.9% last year. The unemployment rate is 8.2%, but U6, which counts those who have stopped looking for work or are marginally employed, is 14.8%. The industrial economy is holding up better. Then there is the rest of the world. Which looks even worse? Europe is in a recession and countries that export to Europe are slowing. Europe accounts for 16.3% of China's exports, 15.5% of India's, and 9..3% of Malaysia's. Asia's slowdown is curbing demand for energy and commodities. There is no quick fix for the problems of Greece, Spain and Italy. The German chancellor, Angela Merkel, advocates austerity, but too much of it causes major recessions. The world is in terrible shape and the market won't rally much. I like Ben Bernanke. He saved the economy from another depression. We will see QE3 because the economy is anemic, but Bernanke is pushing on a string in his efforts to use monetary policy to spur growth. The U.S. needs a fiscal policy along the lines of the Simpson-Bowles plan [formulated by the National Commission on Fiscal Responsibility and Reform], including a combination of tax hikes and spending cuts. But Washington is too partisan to act.

Scott Black's Picks

Company/Ticker Qualcomm/QCOM Triangle Capital/TCAP Source: Bloomberg Cheer us up with some good stocks. Qualcomm [QCOM], if you back out cash of $14.65 a share, is trading at 10.8 times earnings, its lowest P/E in years. The shares are $55.12, and the market cap is $97 billion. The stock yields 1.8%. For the year ending in September, they will have $19.3 billion of revenue and $3.28 in earnings per share, net of stock-based compensation. We modeled 13% revenue growth for fiscal 2013 and after-tax earnings of $7.26 billion, or $3.75 a share. Delphi could never own this kind of stock in the past. Price 6/6/12 $58.41 20.91

Qualcomm, which makes chip sets for cellular telephones, is a money machine. It will generate $7.8 billion of free cash flow in fiscal 2013. Its technology-licensing business contributes 34% of revenue and has 89% margins. Return on equity will be 20.5% next year. Working-capital management is terrific. It takes only 7.5 cents in working capital to support an incremental dollar of revenue. Do you see much growth in wireless? The market will grow 5.7% compounded annually from 2011 to 2015, to 7.6 billion users. The 3G and 4G market, which Qualcomm dominates, will grow 15% annually over five years, to 3.4 billion. Qualcomm isn't a good company; it is a great company. People are desperate for yield. Triangle Capital [TCAP] is a business-development company that specializes in mezzanine financing. It trades for $20and has a $545 million market cap. It pays a $2 dividend and yields 10%. It distributes 98% of earnings to shareholders. It sells for only 1.3 times book value. What exactly does it do? It provides subordinated debt to smaller companies that typically can't borrow more from banks. Triangle is based in Raleigh, N.C. It currently has $580 million of loans spread across 67 companies in 28 industries. Its sweet spot is loans of $10 million to $13 million, and its loan book is regionally diversified. This year interest income will total $86.4 million. Interest expense will be $14.4 million, and net investment income, $56.7 million. The company could earn $2.12 a share this year. Is Triangle's lending history good? The company took $619,000 of loan losses in 2007 and wrote off $5.48 million of loans in 2010. The dividend has been growing at a 10.4% compounded annual rate in the past few years and they never borrowed to pay it. In a bad recession, however, they would be vulnerable on the lending side. That makes sense. Thanks. BILL GROSS Everyone loves Treasuries. How much longer will the romance last? GROSS: Treasuries are overvalued and getting more so as the global economy delevers. This is a long-term process and has been reflected in the stock market for several years. Not just individuals, but banks and insurance companies and other institutions that hold trillions of dollars of risk assets are trying to "de-risk." The market believes U.S. Treasuries and German bunds are what we call the cleanest dirty shirts. They represent stable return of principal. Though little return on principal.

German two-year notes yield zero percent. You're getting negative returns. Ten-year Treasury yields are 1.6% and will go as low as inflation expectations take them. Delevering promotes slower growth. If investors believe inflation is dead, yields on five- and 10-year Treasuries can go lower. I would dispute such expectations. Helicopter Ben [the Fed chairman earned this nickname after suggesting the government could quash deflation by printing money and dropping it from helicopters] has promised to produce 2% inflation or more. To me, that means yields are close to a low. Investors might do better in TIPS [Treasury inflation- protected securities]. Will the Fed launch another round of quantitative easing? Another QE or two is just around the corner. Either the European Central Bank, or the Fed, or both will try to pull one more rabbit out of the hat. Are these maneuvers successful? Only partially. The more numbers you add to "QE," the weaker the thrust. But their historical playbook says lower interest rates are the way to restimulate economies, and if that doesn't work, you buy Treasuries and push rates even lower. Is this the right step? It is necessary medicine. You can't cure a debt crisis with more debt, but you can buy time and kick the can down the road. The only way to cure a debt crisis is to grow out of it, which we don't seem to be doing, or haircut investors [force investors to incur losses] through defaults or negative real interest rates, which is happening. Policymakers are doing the best they can. This is a long-term workout, and double-digit returns are a thing of the past. The entire developed world is overindebted.

Bill Gross' Picks

Company/Ticker Siemens/SI Sanofi/SNY Bond Mexican Bonos 7.75%, due 11/13/42 Source: Bloomberg How long will it be before the economy can stand on its own? A decade. We are in quicksand and the Fed is on dry land extending a hand. We have backed ourselves into this for the past 30 years by making ridiculous bets on dot-coms and subprime mortgages and the like. We should have stopped, and the Fed should have stopped us by keeping interest rates higher over the past 10 years. Now we will be on life support for at least a decade. It doesn't matter which party is in power. Romney might advocate tax cuts to rejuvenate the private sector and Obama wants to soak the rich. But neither will cure our debt crisis. Price 6/6/12 $82.28 34.39 Yield 6/6/12 7.25%

How will the economy perform in the near term? The U.S. can trundle along with 1% to 2% growth, absent a catastrophe in euro land and a dramatic slowdown in China. It is hard to envision the economy growing much faster than 2%, and that isn't good for corporate profits or employment. Banks are holding back from lending, the private market isn't willing to invest, and the public is shifting money from stocks to bonds. The only investor is the government. This country hasn't invested in its own growth for the past five years. Where do you recommend investing? We recommend clean-dirty-shirt countries such as the U.S., Canada, Brazil, and Mexico. Mexico's debt-to-GDP ratio is half that of the U.S., and its long-term government bonds yield 7.5%, as opposed to our 2.55%. We like the Nov. 13, 2042, issue of Mexican bonos, yielding 7.3%. Among stocks, we like companies with safe, predictable cash flows that can diversify sales globally and thus cushion profits, and that yield about 3%. Siemens [SI] is a great way to prepare for a euro-land rebound. It is Germany's GE. It yields close to 5%. Sanofi [SNY], a global pharmaceutical company based in France, trades for eight times earnings and yields 5%. Thank you, Bill. MARIO GABELLI What does the second half of 2012 look like? GABELLI: If President Obama wanted to get reelected, his priority should have been creating jobs and offering clarity about the economy. These are "works in progress." The independent voter is uncertain about the direction of this country. If it looks like Obama will be re-elected and the Democrats will win the House and Senate, stocks could have a sharp selloff. There are other speed bumps: a leadership change in China, the problems in Europe, the end of Operation Twist [the Federal Reserve's move last fall to depress long-term bond yields by selling short-term Treasuries and buying long-dated bonds]. There are questions about oil prices, consumer spending, and second-quarter earnings. About 20% of S&P 500 earnings are tied to Europe. With the euro at $1.24 today, down from $1.43 a year ago, those earnings will be 14% lower. In January there's the fiscal cliffautomatic tax hikes and budget cuts. The good news is U.S. 10-year Treasury rates are very low.

Mario Gabelli's Picks

Company/Ticker Gaylord Entertainment/GET Price 6/6/12 $39.72

Kellogg/K Smart Balance/SMBL Pep Boys Manny, Moe & Jack/PBY National Fuel Gas/NFG Source: Bloomberg Where will stocks end the year?

48.37 7.40 8.76 44.47

To echo my comments from January, the market will be up 5% to down 5% for the year, with a lot of volatility. Companies with ample cash flow, dividends, good business models, and low debt will find ways to surface shareholder value. I thought we would see more financial transactions, but uncertainty also extends to the boardroom. The underlying concern remains the same as in the pastthe U.S. is deleveraging and must grow and remain competitive while doing so. On a more positive note, the automotive market is doing well. Housing is stabilizing and starting to improve in some areas. Some state and local governments are doing better. Some will continue to struggle. Where are the values in this market? We look for companies with great cash flow that could be subject to a new dynamic. Gaylord Entertainment [GET] is a hotel and convention-center operator. Cash flow is improving in their Nashville, Florida, and Texas operations, and the Gaylord National, in the Washington, D.C., area, is stabilizing. Robert Rowling, the Texas billionaire, owns 22% of Gaylord through TRT Holdings and would like to buy more. Gaylord has a poison pill [anti-takeover strategy] that expires in August. The company has decided to pursue one of the potential strategies I laid out when I recommended it in January. Unless acquired by another company, Gaylord is on track to convert to a real-estate investment trust, or REIT. The stock is up 50%, to $39, since the January Roundtable, and it has 10% additional upside between now and year end. Kellogg [K] is a new name for us. The stock is $48 and there are 358 million shares. Management is buying Pringles from Procter & Gamble [PG]. Pringles has great distribution around the world. Kellogg is paying $2.7 billion, and will pick up about $1.5 billion of revenue in 2013 and $275 million of Ebitda. The stock is selling for 13 times next year's estimated earnings of $3.75 a share, which can grow by 8% or 9% in the future. The company is a great cash generator. In the short run the cereal business could suffer as consumers trade down to store brands, but Kellogg will do well in the next few years. How about another name? Smart Balance [SMBL] trades for $7.40, and there are 60 million shares. The company has about $100 million of debt. It markets low-fat milk and healthy margarine spreads. I am recommending

it because they bought a Canadian company called Glutino, which makes gluten-free products, and Udi Healthy Foods, another gluten-free brand. There is a rising awareness of the benefits of gluten-free diets. Euromonitor, a market-research firm, said gluten-free foods were a $2.5 billion category in 2010, and are likely to grow to $3.5 billion by 2015. This could be a game-changer for Smart Balance. The company will generate $330 million of revenue this year and $370 million in 2013, with earnings going from 25 cents to 35 cents. Revenue growth will accelerate in the next couple of years. Smart Balance is positioning itself to be part of a larger company. We are about two years away from a transaction. We have done well in the past with auto-parts companies. Pep BoysManny, Moe & Jack [PBY] collapsed recently. The stock is $8.50, down 50% in the past month. What happened? It is a busted leveraged buyout. Business isn't good. Pep Boys has more than 700 stores. It sells tires at a time when the consumer is pinched and does auto-repair work that is somewhat deferrable. This has created an air pocket in results. The company has $150 million of net debt, including a $50 million breakup fee. Its 2011 first-quarter 10Q gave some insight into the value of its real-estate holdings, which are worth about $700 million. The company has more than $100 million of tax-loss carryforwards. When the arbitrageurs dumped the stock, I started buying. What is the attrraction? There are 250 million cars on the road in the U.S. They are aging and will need repair work, which can be deferred only up to a point. Pep Boys just reported an awful quarter. But it could earn 70 cents a share next year and $1 a share in 2014. National Fuel Gas [NFG] is a Buffalo, N.Y.-area utility which I recommended in the past. Natural gas has dropped to $2.40 per thousand cubic feet from $4.40 per Mcf. National Fuel Gas bought significant acreage in what is known as the Marcellus shale area. The utility has about 750,000 customers and generates good cash flow. It is worth about $17 a share. They have a midstream business -- pipelines -- that is worth about $20. The balance of the company is the Marcellus acreage. Assuming gas prices rise to $4 to $4.50 per Mcf two or three years from now, the stock could be worth close to $80, up from $44. The company pays a dividend of $1.46 a share and yields 3.3%. Thank you, Mario. MARC FABER Are things really as bad as they look? FABER: The global economy has slowed considerably. Europe is in recession, and growth in U.S. GDP might owe more to statistical aberrations than reality. In Asia, the Chinese economy

has been decelerating sharply, which impacts China's trading partners and industrial commodity prices. Lower demand for commodities hurts commodity producers, whether in Argentina, Brazil, Africa, or Russia. Will things get worse before they get better? Yes, possibly much worse. Central bankers will argue that more stimulus is needed. But the crisis has occurred in large part because governments have grown excessively large. The private sector produces growth. When government is 40%, 50%, 60% of the economy, the economy won't perform well. If you cut government spending meaningfully, you produce more growth, although this can be painful in the near term. Canada took this course in the mid-1990s. The outlook is grim for the federal deficit in the United States. Regardless of who wins the election, there will be compromises. But spending cuts will be back-end loaded and tax increases will be postponed. We won't see a federal deficit below a trillion dollars for a long time. What will the stock market do for the rest of this year? Most markets peaked in May 2011. The S&P 500 fell to 1,074 by Oct. 4 from 1,370. Then we had a strong rebound with the index making a new high at 1,422. This high wasn't confirmed by other indexes, such as the Value Line Index, the Russell 2000, and the Dow Jones Transportation index. The S&P 500 is vulnerable at this level. I anticipate further weakness in the second half of the year. Corporate profits will disappoint. Some 40% of S&P 500 earnings come from overseas, and a large proportion are generated in Europe. There is no resolution to the problem in Europe because no one wants to accept austerity. The best outcome for Greece probably would be to exit the euro zone. But the new Greek drachma would depreciate by 50% to 70% against the euro. The Greeks don't want their pensions paid in a depreciating currency. Nor do they want austerity, as their pensions and government salaries would be cut by 50%.

Marc Faber's Picks

Investment/Ticker Gold (spot, per ounce) Goldcorp/GG Singapore REITS* Mapletree Comm Trust/MCT Frasers Centrepoint Trust/ FCT K-REIT Asia/KREIT Mapletree Logistics Trust/MLT Ascott Residence Trust/ART Cache Logistics Trust/CACHE Parkway Life/PREIT *All shares trade in Singapore Source: Bloomberg Price 6/6/12 $1,619.30 40.24 S$0.92 1.63 0.98 0.98 1.06 1.03 1.81

How will the stalemate end? The breaking point could be three, four, five years away. The world is heading toward a major crisis. In the meantime, central banks can continue to print money and markets might move up. Since 2009 stocks around the world have more or less doubled. But the economy hasn't performed well, and the typical household hasn't been helped. With quantitative easing, money flows into the hands of relatively few people. I am very negative about the outlook longer term. It is safest to buy U.S. Treasuries because the U.S. can print money. It will pay the interest. But you are earning only 1.6%, and the cost of living is increasing by about 5% a year around the world. You are getting a negative real return. So you're recommending equities, despite the poor backdrop? I still like my January investment picks. As a group, Singapore REITS look OK. Among them I like Mapletree Commercial Trust [MCT.Singapore], Frasers Centrepoint Trust [FCT.Singapore], K-REIT Asia [KREIT.Singapore], Mapletree Logistics Trust [MLT.Singapore], Ascott Residence Trust [ART.Singapore], Cache Logistics Trust [CACHE.Singapore] and Parkway Life [PREIT.Singapore]. I am also warming to gold shares. Gold corrected to $1,522 last December from $1,921 in September. It rebounded to $1,795 in February and is back down around $1,600. The correction could last longer, but given that governments will print more money, gold is relatively effective as a currency. My preference is physical gold, but I would also own some gold shares, which have been decimated. Goldcorp [GG] is attractive because most of its properties are in the U.S., Canada, and Mexico. The company isn't exposed to regimes that are talking about nationalizing resources. In general, stock markets are oversold. The U.S. government-bond market is overbought. The U.S. dollar is overbought, and gold is oversold near term. Thanks, Marc. OSCAR SCHAFER Oscar, when will this economy get its act together? SCHAFER: I used the phrase "bumble along" in January because deleveraging in the developed world will continue to cause slow growth. I don't know if we'll have another recession, but with the fiscal cliff coming, that is what the market is worried about. With the federal deficit so large and interest rates so low, the private sector must provide the stimulus to the economy. Yet companies and consumers have little confidence, especially given what is happening in Washington. If politicians focus on curbing the deficit, the U.S. could become the best place to invest, and stocks, which are now cheap compared to most other asset classes, could surprise to the upside. There is a chance that we could begin an extended bull market.

Are you kidding? When I mention this, most people are surprised. That makes me think I'm more right than wrong. Recent stories have highlighted a resurgence in manufacturing in the U.S. in industries such as steel and televisions. With industries moving back here and energy independence just around the corner, the U.S. could once again shine. Better growth will lead to higher tax revenue, which will lead to deficit reduction and a better atmosphere. Then the U.S. will be the best place to invest not only relatively, but absolutely. I'm basically a conservative fellow who thinks the glass is half-empty. But things are starting to look half-full. How does that affect your investment decisions? In the current slow-growth world, I look for companies that can shrink their share count, which increases earnings per share. Xerox [XRX] is an example. The market considers Xerox an oldline tech company with secular challenges. But evaluating it as one does Hewlett-Packard [HPQ] or Dell [DELL] completely misses what has happened in the past few years. A better analogy is IBM [IBM]. Today Xerox is in the process of a transformation that will make it look very different from the old copier company.

Oscar Schafer's Picks

Company/Ticker Xerox/XRX Covanta Holding/CVA Source: Bloomberg Price 6/6/12 $7.44 15.96

Under the stewardship of Ursula Burns, a tough, no-nonsense CEO, services have come to represent more than 50% of revenue. The company specializes in business-process and information-technology outsourcing, and handles such diverse things as managing toll-road payments, Medicaid payments, and alimony disbursements. These are long-term contracts and solidly profitable. You recommended Xerox in the past, but the stock has yet to recover from a selloff in 2008. Why will it perform better now? The transformation is right on schedule. Declining stock prices beget declining stock prices. People don't understand this situation yet. Xerox successfully has integrated ACS, the services provider it acquired in 2010, and has begun to see accelerated growth. This half of Xerox grew 9% year over year in the latest quarter. The traditional print business faces challenges as people print less, but some of the decline is offset by an increase in color printing. Xerox can grow its revenue by 2% to 3% a year, which isn't a lot. But the stock trades for only seven times earnings, and the free-cash-flow yield is 17%. Xerox is using about 75% of its free cash to buy back shares and pay dividends. Free cash flow will approach $2 a share by 2014. Apply its current multiple and the shares could double. Downside is minimal. Major transitions

are never easy, and there was a lot of skepticism around IBM's transition away from hardware. But the early signs at Xerox are encouraging. What else appeals to you these days? Covanta Holding [CVA] has been ignored and misunderstood. It falls between of the cracks of a waste company and an energy company. As a result, it doesn't get much attention from Wall Street. We have known the management team for years. Covanta is a leader in generating energy from waste. The company has a $2.1 billion market cap and owns and operates 41 waste-toenergy facilities in North America, four in China, and one in Europe. It processes more than 20 million tons of waste annually in North America. It recycles 430,000 tons of metal and generates 10 million megawatts of electricity each year. The company has long-term contracts to dispose trash and is paid by the ton. This accounts for more than 60% of revenue. Covanta sells the energy that is generated and the metals that are recovered from the trash-disposal process. I won't describe it as an exciting growth company, but like Xerox, it is a reliable free-cash generator. How fast is it growing? We expect the company to grow by 4% to 5% annually and generate $250 million to $300 million of free cash flow per year. This equates to more than $2 a share of free cash for a stock that is trading below $16. You're getting a 13% to 14% free-cash-flow yield on a stable business. Compare that to where bond yields are. Given its stable cash flow and the long-term nature of its assets, Covanta could catch the attention of private-equity investors focused on infrastructure. The board and management recognize the value in their own shares. In less than two years the company has returned $600 million to shareholders in buybacks, dividends and special dividends. The current yield is almost 4% and management is committed to buying back shares and growing the dividend. In the meantime, you get an option on some large development projects in Europe -- one in Ireland and one in the U.K. If the company proceeds with these projects, Ebitda will grow significantly when the plants come online. If they don't move forward, we suspect they will accelerate share buybacks and increase the dividend. What is restraining growth? Covanta sells some of its energy on the open market, and when natural gas prices are so low, energy prices are depressed. As older contracts roll over at lower rates, this becomes a head wind. Investors also worry about how state and municipal budgets will impact long-term contracts. If anything, there is greater demand for Covanta's services as new regulations make landfill disposal increasingly challenging. Thank you, Oscar.

FRED HICKEY You were worried about the world in January. Are things worse now? Hickey: In every instance, from Europe to China to India to Brazil, things have gotten worse. Even the U.S. is preparing to succumb. The policies prescribed to boost the economy aren't going to be successful. Piling up trillion-dollar deficits for four consecutive years and imposing significant tax hikes at year end don't encourage confidence, and when that is lacking, businesses don't invest. If the Republicans win the White House and both branches of Congress in the November elections, tax increases slated for next year will be reversed. But that is a big if. We are also going to hit the federal debt ceiling again. There will be a lot of turmoil in the next few months. The Fed's policymakers meet June 19. Is another round of quantitative easing coming? It is highly likely, in June or later in the summer. Greece will hold elections June 17. Turmoil there could force the Fed's hand. Also, the U.S. has had three poor employment reports in a row, which will give the Fed cover to do what it wants. When they print money again, there will be a sharp rally in the market. The risk is it won't last. You want to invest aggressively as soon as you know QE3 will happen. After the rally has gone on for a while, you want to sell. Governments are manipulating economies by suppressing interest rates. They are spending way beyond their resources. You aren't investing here for economic reasons, but based on what the government will do next. The U.S. government is trying to delude people into thinking we can get out of our financial mess in a painless way. Bernanke studied the Depression but learned the wrong lesson and is applying the wrong cure. Eventually we will have to bring our budget into balance, address longterm entitlement spending, and endure a period of austerity.

Fred Hickey's Picks

Company/Ticker Agnico-Eagle Mines/AEM Hecla Mining/HL Canadian Dollar Source: Bloomberg These views suggest you still like gold. Central banks are printing money around the world. Excess money and negative real interest rates create a perfect environment for gold. The price of gold has fallen by more than $300 an ounce from September's high of $1,921. The excess enthusiasm has been taken out. It is hard to believe you can have so many disbelievers in the 12th year of a bull market, but that is the case. I cut my position nearly in half. But all this will change when the market gets a hint of QE3. By year end, we could see $2,000 gold. Price 6/6/12 $40.93 4.66 $1=C$1.03

Are you buying bullion or mining shares? I sold and repurchased some bullion. Mostly, I am buying mining stocks because of their severe underperformance relative to the price of gold. I like Agnico-Eagle Mines [AEM], a gold stock, and Hecla Mining [HL], a silver stock. Both were hammered by gold's decline and a mine shutdown. Agnico-Eagle hit a high of $88 a share in December 2010. Now it is $40. The company has six mines, and one of its best, Goldex, in Quebec, was shut late last year after some rock movements. Agnico wrote off the full value of the mine, but it is likely to be worth something. I'm not a market technician, but the stock chart looks excellent. A bottom is forming. That is because they will realize some value from the mine. The company earned 59 cents a share in the March quarter. They generated tons of cash. They increased the dividend and paid back about 10% of their debt, which is now about $840 million. What is the dividend yield? The stock yields 2.1%, and is cheap. The company will have one more weak quarter. Once gold goes up, and Goldex returns to production, earnings will rise. Analysts look for Agnico to earn about $2 a share this year and $2.32 in 2013, but those estimates look low and don't account for any contribution from Goldex. The company could earn as much as $3 a share. What is your target price for the stock? It could go to $70, or higher if gold prices go to record highs. Hecla is the largest silver producer in the U.S., and has been operating for more than 120 years. Shares spiked to $11.33 as silver was climbing to near-$50 an ounce. Now they are trading for $4.25. The company has only two producing mines, in Alaska and Idaho. After 8.5 million man hours of operation without problems, the Idaho mine had two fatalities last year, and federal regulators shut it down. Hecla could resume production by early 2013. As investors start anticipating the reopening, the stock price could pick up later this year. Higher silver prices and the resumption of production will propel earnings. Silver is trading at $28 an ounce, and could top $50. Any other recommendations? Hold cash, but don't put it in the U.S. dollar. I would buy Canadian dollars. Canada has a stable government and isn't printing money. Debt as a percentage of gross domestic product is far lower than in the U.S. They are cutting tax rates, and their corporate rate is 15%, versus 35% in the U.S. You have been expecting technology stocks to bottom. Any sign of that yet? Tech has been in a bear market since 2000. Big tech companies are heavily exposed to the international slowdown, and recent earnings reports from Hewlett-Packard and Dell were

gruesome. The CEO of NetApp [NTAP], a storage company, said the data-storage business is challenged even though storage accounts for the biggest part of IT [information technology] budgets. I said in January that the bottom might come in October. We are heading in that direction. I am bullish longer term on Dell, although I don't own it now. The company is in transition and is increasing its exposure to networking and storage and some newer growth areas. It is still generating good cash flow and income. I would even consider buying Hewlett for some of the same reasons. Microsoft still is the best short-term play in tech and will benefit from a new product cycle as Windows 8 comes out across different platforms. It pays an 80-cent dividend and has a cheap stock. If I see the Fed printing more money, I will buy more Microsoft immediately. Why are you so bearish on cloud-computing stocks? They are highly priced and could fall sharply. Salesforce.com [CRM] trades for about 70 times earnings and doesn't earn much if you consider stock-based compensation. I don't trust the business models of social-networking companies like Groupon [GRPN] and Zynga [ZNGA]. It is dangerous when a virtual hammer sells for more than a real one. I like Facebook [FB] but there is a lot of good news in the price.