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

How is Pfizer's new-drug pipeline? Investors have been waiting for Pfizer to prove again that it can generate interesting new drugs. Pfizer had $26. Return on equity is 12%. Abby.5 times the Shiller P/E ratio [the market's current price divided by the past 10 years' inflation-adjusted earnings]. Pfizer [PFE] has been reformulating its business. as well. an MIT-trained economist and Harvard professor. and Jeremy Stein. Our analysts think the company will buy back $4 billion or $5 billion of stock this year. The Senate just confirmed the appointments of Jerome Powell. How about some stock picks for the second half? Our analysts like Wells Fargo [ticker: WFC]. Italy trades at levels last seen in Mussolini's era. bringing it back to full strength. it localizes risk management in individual business lines. . Wells has a commanding market share in several areas. It has been selling off businesses in which it doesn't have a competitive advantage. The structural framework is wrong and cyclical dynamics are still pointing down. A Food and Drug Administration panel recommended approval of a new Pfizer treatment for rheumatoid arthritis in May. Wells has shown good discipline on the expense side.5 times this year's expected earnings and yields 2. We are expecting mid. Greece trades at 1. Structural? Cyclical? Please explain. FELIX ZULAUF Is there a good word from Europe? ZULAUF: Adjusted for inflation. and some competitors have reduced their exposure to mortgage finance. Financial stocks were among the best performers in the first quarter and among the worst in the second.7%. The stock trades for 9. including a 41% share of the mortgage-finance business. such as nutritional products. an investment banker and lawyer. Management has said it wants to return the money to shareholders. Good point. The regulatory environment is changing. Thank you. The stock sells for 10 times this year's expected earnings and yields 4%. Most European markets are good value but that doesn't make you any money. Pfizer might make some strategic acquisitions.tend to have better revenue and earnings than the economy overall.to high-single-digit profit growth. up from 23% in 2010. The bank has emphasized this business. 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. Also. One thing we're happy about is the addition of two capable new governors to the Federal Reserve Board.5 billion of cash at the end of 2011.

if provided in massive quantities. Politicians therefore will go from one Price 6/6/12 $1. Sounds like a fun year. It is a dangerous situation. Investment/Ticker Cash LONG Gold (spot price.619.25% $38. which won't happen. My two major themes into 2013 are euro disintegration and China weakness. The global economy is weakening cyclically on top of a highly fragile credit system. That should lead the world into financial and economic chaos.03 .There is too much debt in the industrialized world and the financial system is virtually bust. given current systemic circumstances. or so-called quantitative easing. It could only work if the euro zone entered a fiscal and political union. In the past 10 years the notional value of derivatives worldwide has grown from $100 trillion to almost $800 trillion. ** September 2012 contract. So what will happen next? The euro is not the real problem but a trigger and compounder of the structural problems. Even the U.S. Employment participation keeps heading south. If something goes wrong in the real economy. As for the euro. Real disposable personal income is stagnating or declining. as Europeans aren't prepared to give up national sovereignty. will wake up to this after the election. per ounce)* Australian 3-Year Bond Future** SHORT iShares MSCI Emerging Markets Index Fund/EEM *Buy when gold prices fall below $1. due to the bursting of a real-estate boom. doesn't produce economic growth. it could shake the whole credit system dramatically. The tower of debt is compounded by the gigantic over-the-counter derivatives market. Governments around the world have realized they carry too much debt and need to tighten fiscal policies. But it may prevent the credit system from imploding. It is an explosive cocktail.30 Yield 6/6/12 2. I expect the disintegration to begin in the second half of this year. which weakens natural-resource producers such as Australia or Brazil.500. As I said in January. Monetary policy. This produces a chain reaction: Weaker consumer demand in the West weakens manufacturing in places like Asia. Source: Bloomberg How will policymakers react? They have exhausted a big part of their resources. The numbers are mind-boggling. it is a misconstruction.

the U.S. Stick with Australian three-year government bond futures. How will the U.S. capital controls and dramatic restrictions on financial markets. but gold will offer protection in coming years because it is true money.S. it could become energy self-sufficient by developing natural gas and shale oil. The authorities have intervened more and more. How bad will things get? The potential exists for a broad-based nationalization of the credit system. Some might even be closed for some time. dollars. What is an investor to do in the face of this unpleasant news? I am sticking with my January recommendations. This is a direct bet on China's weakening. That's why bond yields have fallen so low. I would take some profits and not buy new bonds. They will want their old national currency back. In the short-term. That could lead to a quick shakeout into the $1300s. They might change the rules when the game goes against their own interests.-focused investors might not understand it as they see corporations doing well.20% in January. could do best. equity and commodity markets are making a low. . is clever. Good heavens! We are witnessing the biggest financial-market manipulation of all time. They are oversold. as it did in 2009. We are in a severe credit crunch. and devalue to adjust the external accounts. as I recommended. and if the U. with the crisis deepening until some nations at the periphery won't be able to stand the economic pain anymore.S. and thereby created this monster. China won't be able to save us. While I expected Treasury yields to hit bottom in the fall. 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. The euro zone will come up with new quick fixes later this month and markets will attempt to rally. Sell the rest in the fall. we must assume things will go awfully wrong in the next 12 months and the system will be at risk of collapsing. I would hold lots of cash. preferably in U. I also continue to recommend buying gold if it breaks below $1500. If my thesis is right.compromise and quick fix to the next. Most U. and short-term rates could fall further. The Chinese will lower interest rates but their actions will be reactive and lag. and use a stop-loss order to protect profits if you bought the 10-year when it was yielding 2. It has more of an affinity for freedom than socialistminded Europe. compounded by a quasi-shortage of good collateral. But I see a cyclical bear market continuing well into 2013. This isn't an inflationary environment but a deflationary one.S do in your scenario? On a relative basis.

But when you are investing you are buying part of a company. Valuations are good and in the end should provide support. you will make money in the long run. Some European governments were bad parents. and with the cost of production increasing in Asia and high unemployment here. or iShares MSCI Emerging Markets index fund. and try to find companies that. Their policies didn't foster a work ethic. and a good test of the validity of the investment is whether. I would continue to short the EEM. but if you buy a great business with excellent managers who allocate capital carefully. Felix. you would still be happy owning that company. How does the economy look to you? The economy will have a tail wind from increased domestic oil and gas production.S. Will the market tank if Romney looks to be losing? Much will depend on the congressional elections. things get better. it becomes a virtuous cycle. which is a bearish play on stocks as well as currencies. You have to stay unemotional and analytical. You can have all kinds of emotions about the market and individual stocks. in the long run. Thank you. If businesses move back here and employment picks up. Meryl? WITMER: Pretty well before May. If it looks like [Republican presidential candidate Mitt] Romney is going to win. MERYL WITMER How is the market treating you. will generate free cash and increase in value. Usually.59 31. Retailers want a shorter supply chain. That will be a big driver of growth. There is also the possibility of a change in leadership in the U. Europe has to change its labor and benefits laws. 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. A lot of our stocks are cheap.53 . The exodus from the market has created bargains. people could get bullish. and now many people feel entitled. jobs are coming back. if the market were to close for 10 years. Also. you can run your business efficiently and lay off people if you need to. when stocks get cheap like this. unlike in much of Europe.S.Do you see any opportunity in equities? Only on the short side. Many people are short-term oriented. Manufacturing is being repatriated to the U.

As a result it will earn about $1. T-shirts. instead of $2. earnings will be 40% higher.50 and $3 a share. chemicals.30 a share in the fiscal year ending September. where its market share has grown organically in the past 10 years from 10% to 65%. It has a .S. It has 122 million shares and is trading for $24. Gildan also is moving into some performancetype shirts. which is $31. 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. would trade at much higher P/E ratios than the four to six times earnings refiners get today. The company's production costs are 20% below competitors. the Dominican Republic. Gildan's customers are small and the company decided to take the hit itself when prices plummeted. Next year. and Bangladesh. and grow sales internationally. That is another plus for Gildan. if recognized. How will they grow the business? They will be able to enter the national accounts channel. It is currently about break-even. It has three segments: oil-refining. If it can utilize that capacity in the next few years.60. It has very little debt. it will exceed 70%. fleece for the wholesale market. How about another name? Phillips 66 [PSX] was spun out of ConocoPhillips [COP] in April at $32 a share.50 to $4 a share. In our research checks we discovered that several customers personally own shares. as the high-cost cotton moves out of their inventory. and socks under the Gold Toe and other brands. and fleece at retail.50 a share. A business of this quality could have a 15 price/earnings multiple. and grow thereafter. wholesale market. earnings should rebound to between $2. Its main sales channel is the wholesale screenprint market. Gildan has been perennially capacity constrained and recently completed a big addition that will increase capacity by 40%. They make T-shirts. The JV makes ethylene and polyethylene from ethane and naphtha. They will also increase sales of branded underwear. to $3. which are more profitable. sweatshirts. The chemicals division consists of Phillips' 50% share of a joint venture with Chevron [CVX] called CPChem. Gildan has a great management team that owns about $250 million worth of stock.Gildan Activewear [GIL] is benefiting from retailers' search for shorter supply chains. as opposed to a P/E of eight to 10. The refinery business has sub-segments that. it buys yarn and converts it into fabric at low cost in manufacturing plants in Honduras. With a recent acquisition. Hanesbrands [HBI] just announced it is exiting the U. Gildan has the potential to trade between $45 and $60 a share. but Gildan is moving production to its low-cost facilities. and midstream. The company is vertically integrated. selling to non-retailer consumer brands like Nike [NKE] and Disney [DIS]. and then manufactures garments. The two nonrefining segments are worth roughly the current stock price. There could be some improvement in the branded-sock business. Cotton prices spiked last year.

40 a share and should have a trading value of $20. which is trading at a big discount to Brent crude. midcontinent refiners will have a big cost advantage. It should have free cash flow of $1. and a large and valuable natural-gas pipeline system. because its main feedstock. and you get a target price of $50 for Phillips. which is over-earning. BRIAN ROGERS Is the year playing out as you expected? . and possibly much more. which. earns about $500 million after taxes. like Gildan and Phillips 66.proprietary process that produces a higher-quality product at lower cost. Add up the pieces and subtract $9 a share of debt. How so? Its midcontinent refineries use West Texas Intermediate oil as a feedstock. It earns a healthy spread. or $13 a share. Meryl. For at least a couple of years. or more than $20 a share. So you get the refining business free? Right. ethane. There are three segments. The remainder of the refining business is worth at least $10 a share. It also licenses this technology to competitors. Good advice. Okla.S.. to the Gulf of Mexico.75 in 2012. could earn $400 million. the price has fallen dramatically. will do well.30 a share this year. benefitting Phillips' refineries there. It is worth 17 times free cash flow. These earnings deserve to be valued at a 10 multiple. until more pipelines are built. CPChem sells into the world market. With increased production of natural gas and the build-out of fractionation plants to separate ethane and other liquids. Then there is an extensive pipeline asset base separate from the midstream segment. is in oversupply. That leaves the basic refinery operation. Combined. Perhaps they will get cheaper. The specialty-marketing business.17 a share in 2011 and could earn $3. The midstream segment owns and operates natural-gas processing facilities and fractionation plants." People get caught up in worrying about big-picture things. It also owns 50% of a master limited partnership. One more thing: I liked Brian Rogers' line from the January Roundtable that "the world doesn't end that often. these businesses earn about $1. but you want to buy when you see a good price. given the lack of capacity to move WTI out of Cushing. What does that mean for Phillips? Phillips' 50% of PCChem could earn $1. Then that will shift to the Gulf. The business has an advantage in having 80% of its capacity in the U. not when you have perfect economic certainty.20 to $1. which operates gas stations.30 a share and about a dollar in earnings once it finishes up a couple of projects. but when valuations are cheap and the world population is growing. where competitors are using higherpriced naphtha. Thanks. if spun out into an MLP. companies with good assets and low-cost production advantages. Refinery operations earned $4.

even in Brazil. I assume the Republicans retain control of the House and gain control of the Senate. Commodity prices also are under pressure. I thought the Greeks would behave better. and good dividend- . Yields are about 600 basis points [six percentage points] above Treasury yields. we like good companies with low valuations. good dividend yields. It is best to buy them through an emerging-markets fund. The payroll-tax cuts probably get extended. We have to take the training wheels off the bike at some point and see if we know how to ride. risk-off trading cycles this year. Those markets all have higher expected growth rates than ours in the next few years. but I believe sanity will prevail in Washington. and the S&P 500 rose about 12% before its recent setback. modest recovery. and valuations are pretty compelling. What do you see for Wall Street? The market probably will have two more risk-on. which has been disruptive. We won't have a third round of quantitative easing. Emerging markets offer great opportunities. and that President Obama is re-elected.35 17. In stocks.48 46. Now everyone is talking about the fiscal cliff.94 33. There is concern about growth in China. and Brazil's problems have surprised me a bit. would re-emerge as such a critical issue. but we don't need it.07 50. It could be up more than 10% this year. What is ailing Brazil? The banks have had credit issues. Investors gradually have regained confidence. You can't buy the 10-year Treasury here.ROGERS: Pretty much.11 29. President Clinton moved to the center in his second term. It will be higher at year end than now. Foreign capital has been flowing into the Brazilian economy in a global grab for yield. I didn't think Greece. You could argue the market was fairly extended after its big advance. and Obama will do the same. 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. I like the credit spreads on high-yield bonds because credit conditions are favorable. Now the currency is weakening so there will be capital outflows. and Europe generally. Most of the economic underpinnings suggest a continued.92 In fixed income. which would argue for a 5% gain in the second half. Bernanke has been vocal about keeping rates low.

Juniper Networks [JNPR] is down $3 a share since we met in January. Care to update your stock picks? We like our January picks.75 a share this year. Thanks for the update. Murphy is a midsize global oil and natural-gas exploration and production company. but earnings will still be strong. The stock popped higher.50 range. Microsoft [MSFT] reported good earnings and its shares are also inexpensive. taxes. depreciation. Murphy will probably earn $5. You get 2. But I hate to sell things when they are down. The company will raise its dividend this year. It sells for less than 2. Earnings estimates could be under pressure in the second half. It yields 2.5 times earnings. but the valuation is attractive. but not control. Emerson Electric [EMR] took 2012 earnings estimates down to the $3. perhaps to $1 a share from 80 cents. especially as the fundamental case continues to build. The shares are trading around tangible book value. Subtract the company's approximately $5 a share of net cash and the P/E multiple is low. down from $100 several years ago. Do you have any new recommendations? Murphy Oil [MUR] gets little attention. not from cost pressure but revenue pressure.5 times Ebitda [earnings before interest. It lost 10 times in market value what it suffered in losses from its recent trading error. although I am removing Ingersoll-Rand [IR]. and amortization]. Thermo Fisher Scientific [TMO] had good first-quarter earnings and continues to buy back stock. the price will rebound. It is based in Arkansas. Nelson Peltz's Trian Fund Management established a stake in the company recently and said it will seek ways to maximize shareholder value. Oil has come down as the global economy has weakened. and the stock is inexpensive relative to many large-capitalization energy companies. JPMorgan Chase [JPM] is my biggest disappointment. The company has a $9 billion market capitalization and little debt. People are worried about oil prices falling but a lot of the concern is reflected in the shares.8%. but as soon as growth expectations pick up for emerging markets. which has been a head wind. You're not alone there.3 barrels of oil equivalent for each share. It has a refining business but is getting out of the marketing business. Brian.35 to $3. SCOTT BLACK . It operates in good business niches and sells for 10. There is significant family influence. It yields 2.5%. They are 35% exposed to emerging markets. It continues to buy back shares and could earn $4 a share in the fiscal year ending September 2013.growth prospects. Shares are at $47.

There is no quick fix for the problems of Greece. The market is cheap by historical standards.12. Then there is the rest of the world. But Washington is too partisan to act. corporate balance sheets have more than $2 trillion of cash.8%. Scott? BLACK: The S&P 500 trades at 12.8%. advocates austerity.91 . For the year ending in September. Personal income is up just 2. its lowest P/E in years.4 times my estimate for 2012 profits: $103. The German chancellor. Also.2%.5% of India's. Delphi could never own this kind of stock in the past.What do you make of the market. He saved the economy from another depression.4% from 4. and the savings rate has fallen to 3. net of stock-based compensation.S. 15. and consumers are in trouble. including a combination of tax hikes and spending cuts. or $3. Asia's slowdown is curbing demand for energy and commodities. The only way people can defend their standard of living is by withdrawing savings.S. is trading at 10. GDP.75 a share.65 a share. The consumer accounts for 70% of the U. but Bernanke is pushing on a string in his efforts to use monetary policy to spur growth.41 20. The stock yields 1.8%. The unemployment rate is 8.26 billion.3%. and 9. We modeled 13% revenue growth for fiscal 2013 and after-tax earnings of $7. The U. which means real income is negative. but U6.3% of China's exports. Inflation is 2. Angela Merkel. economy is sputtering.1% year over year. they will have $19.28 in earnings per share. needs a fiscal policy along the lines of the Simpson-Bowles plan [formulated by the National Commission on Fiscal Responsibility and Reform]. and the market cap is $97 billion.. especially with today's low interest rates. The U. but too much of it causes major recessions. The industrial economy is holding up better. The shares are $55. if you back out cash of $14. Price 6/6/12 $58.44 last year. Spain and Italy. The world is in terrible shape and the market won't rally much.3 billion of revenue and $3. Scott Black's Picks Company/Ticker Qualcomm/QCOM Triangle Capital/TCAP Source: Bloomberg Cheer us up with some good stocks. Europe accounts for 16. That's it for the good news. Qualcomm [QCOM].S. up from $96.3% of Malaysia's.8 times earnings. and personal consumption is up 1. I like Ben Bernanke. which counts those who have stopped looking for work or are marginally employed.9% last year. is 14. We will see QE3 because the economy is anemic. Which looks even worse? Europe is in a recession and countries that export to Europe are slowing.

It takes only 7.5% next year." The market believes U.4 million.48 million of loans in 2010. Interest expense will be $14. They represent stable return of principal. which Qualcomm dominates.6 billion users. The company could earn $2. It pays a $2 dividend and yields 10%. This is a long-term process and has been reflected in the stock market for several years. The 3G and 4G market. Do you see much growth in wireless? The market will grow 5. will grow 15% annually over five years. Not just individuals. . Triangle is based in Raleigh. $56. 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. to 3.3 times book value.4 million.000 of loan losses in 2007 and wrote off $5. It trades for $20and has a $545 million market cap. It will generate $7. Return on equity will be 20. but banks and insurance companies and other institutions that hold trillions of dollars of risk assets are trying to "de-risk. It currently has $580 million of loans spread across 67 companies in 28 industries. Its technology-licensing business contributes 34% of revenue and has 89% margins.Qualcomm. to 7. Is Triangle's lending history good? The company took $619. What exactly does it do? It provides subordinated debt to smaller companies that typically can't borrow more from banks.4% compounded annual rate in the past few years and they never borrowed to pay it.8 billion of free cash flow in fiscal 2013. it is a great company. Its sweet spot is loans of $10 million to $13 million.C. however.S. they would be vulnerable on the lending side. Working-capital management is terrific.12 a share this year. and net investment income. This year interest income will total $86. N. and its loan book is regionally diversified. The dividend has been growing at a 10. Thanks. That makes sense. It distributes 98% of earnings to shareholders.4 billion. Qualcomm isn't a good company.7% compounded annually from 2011 to 2015.5 cents in working capital to support an incremental dollar of revenue. Though little return on principal. In a bad recession. Treasuries and German bunds are what we call the cleanest dirty shirts. which makes chip sets for cellular telephones. People are desperate for yield.7 million. Triangle Capital [TCAP] is a business-development company that specializes in mezzanine financing. is a money machine. It sells for only 1.

We should have stopped. If investors believe inflation is dead. This is a long-term workout. that means yields are close to a low.6% and will go as low as inflation expectations take them.39 Yield 6/6/12 7. Is this the right step? It is necessary medicine. To me. 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. You're getting negative returns. We have backed ourselves into this for the past 30 years by making ridiculous bets on dot-coms and subprime mortgages and the like." the weaker the thrust. or haircut investors [force investors to incur losses] through defaults or negative real interest rates. and if that doesn't work. or the Fed. We are in quicksand and the Fed is on dry land extending a hand. The more numbers you add to "QE. Investors might do better in TIPS [Treasury inflation. which is happening. Ten-year Treasury yields are 1. yields on five. I would dispute such expectations. and double-digit returns are a thing of the past.protected securities]. Now we will be on life support for at least a decade. The only way to cure a debt crisis is to grow out of it. Bill Gross' Picks Company/Ticker Siemens/SI Sanofi/SNY Bond Mexican Bonos 7. You can't cure a debt crisis with more debt. But their historical playbook says lower interest rates are the way to restimulate economies. Price 6/6/12 $82. It doesn't matter which party is in power.and 10-year Treasuries can go lower. Romney might advocate tax cuts to rejuvenate the private sector and Obama wants to soak the rich.25% . Policymakers are doing the best they can. and the Fed should have stopped us by keeping interest rates higher over the past 10 years.German two-year notes yield zero percent. you buy Treasuries and push rates even lower. Delevering promotes slower growth. but you can buy time and kick the can down the road. Will the Fed launch another round of quantitative easing? Another QE or two is just around the corner. or both will try to pull one more rabbit out of the hat. which we don't seem to be doing. The entire developed world is overindebted. due 11/13/42 Source: Bloomberg How long will it be before the economy can stand on its own? A decade.28 34. Either the European Central Bank. But neither will cure our debt crisis.75%. Are these maneuvers successful? Only partially.

Siemens [SI] is a great way to prepare for a euro-land rebound.S. as opposed to our 2. and the public is shifting money from stocks to bonds.S. This country hasn't invested in its own growth for the past five years. The only investor is the government. 2042. It is hard to envision the economy growing much faster than 2%.43 a year ago. 13. Brazil. stocks could have a sharp selloff.. Bill. consumer spending. and second-quarter earnings.How will the economy perform in the near term? The U. The good news is U. we like companies with safe. Where do you recommend investing? We recommend clean-dirty-shirt countries such as the U.55%. Among stocks. 10-year Treasury rates are very low.24 today. Canada.3%. and its long-term government bonds yield 7. It is Germany's GE. can trundle along with 1% to 2% growth. and that yield about 3%. Thank you.5%. About 20% of S&P 500 earnings are tied to Europe. his priority should have been creating jobs and offering clarity about the economy. and Mexico. the problems in Europe. predictable cash flows that can diversify sales globally and thus cushion profits. Sanofi [SNY]. and that isn't good for corporate profits or employment. Banks are holding back from lending. There are questions about oil prices. issue of Mexican bonos. MARIO GABELLI What does the second half of 2012 look like? GABELLI: If President Obama wanted to get reelected. Mexico's debt-to-GDP ratio is half that of the U.S. In January there's the fiscal cliff–automatic tax hikes and budget cuts. We like the Nov. There are other speed bumps: a leadership change in China. down from $1. With the euro at $1." The independent voter is uncertain about the direction of this country.. 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]. These are "works in progress. yielding 7. absent a catastrophe in euro land and a dramatic slowdown in China. the private market isn't willing to invest.72 . those earnings will be 14% lower. trades for eight times earnings and yields 5%. Mario Gabelli's Picks Company/Ticker Gaylord Entertainment/GET Price 6/6/12 $39. a global pharmaceutical company based in France. It yields close to 5%. If it looks like Obama will be re-elected and the Democrats will win the House and Senate.S.

Robert Rowling. dividends. D. and the Gaylord National. The company has about $100 million of debt.7 billion. In the short run the cereal business could suffer as consumers trade down to store brands. the Texas billionaire.40 8. The stock is selling for 13 times next year's estimated earnings of $3. to $39. Cash flow is improving in their Nashville. Gaylord Entertainment [GET] is a hotel and convention-center operator. Moe & Jack/PBY National Fuel Gas/NFG Source: Bloomberg Where will stocks end the year? 48. Kellogg is paying $2.. and it has 10% additional upside between now and year end. It markets low-fat milk and healthy margarine spreads. Gaylord has a poison pill [anti-takeover strategy] that expires in August. but Kellogg will do well in the next few years. area. I thought we would see more financial transactions. and will pick up about $1.47 To echo my comments from January. Management is buying Pringles from Procter & Gamble [PG]. since the January Roundtable. Housing is stabilizing and starting to improve in some areas. Where are the values in this market? We look for companies with great cash flow that could be subject to a new dynamic. On a more positive note. in the Washington. which can grow by 8% or 9% in the future.75 a share. How about another name? Smart Balance [SMBL] trades for $7.5 billion of revenue in 2013 and $275 million of Ebitda. is stabilizing. Pringles has great distribution around the world. with a lot of volatility. owns 22% of Gaylord through TRT Holdings and would like to buy more. but uncertainty also extends to the boardroom. is deleveraging and must grow and remain competitive while doing so. The underlying concern remains the same as in the past–the U. Unless acquired by another company. Florida. Gaylord is on track to convert to a real-estate investment trust.C. good business models. the automotive market is doing well.S. Some will continue to struggle. and there are 60 million shares. The company is a great cash generator. The stock is up 50%. the market will be up 5% to down 5% for the year. Kellogg [K] is a new name for us. I am recommending .40. and Texas operations. The stock is $48 and there are 358 million shares. Companies with ample cash flow. The company has decided to pursue one of the potential strategies I laid out when I recommended it in January. and low debt will find ways to surface shareholder value.76 44.Kellogg/K Smart Balance/SMBL Pep Boys – Manny.37 7. or REIT. Some state and local governments are doing better.

The company will generate $330 million of revenue this year and $370 million in 2013. It sells tires at a time when the consumer is pinched and does auto-repair work that is somewhat deferrable. The utility has about 750. Revenue growth will accelerate in the next couple of years.5 billion by 2015. They have a midstream business -.5 billion category in 2010. GDP might owe more to statistical aberrations than reality. Smart Balance is positioning itself to be part of a larger company. the stock could be worth close to $80. What is the attrraction? There are 250 million cars on the road in the U.pipelines -. Business isn't good. and Udi Healthy Foods. But it could earn 70 cents a share next year and $1 a share in 2014. Mario. The company has more than $100 million of tax-loss carryforwards. and are likely to grow to $3. N. up from $44. I started buying. which can be deferred only up to a point. What happened? It is a busted leveraged buyout. This has created an air pocket in results. The stock is $8. Pep Boys–Manny. The company pays a dividend of $1. They are aging and will need repair work.-area utility which I recommended in the past.3%.it because they bought a Canadian company called Glutino. The company has $150 million of net debt. Europe is in recession. with earnings going from 25 cents to 35 cents. a market-research firm. The balance of the company is the Marcellus acreage. There is a rising awareness of the benefits of gluten-free diets. National Fuel Gas [NFG] is a Buffalo.50. Assuming gas prices rise to $4 to $4. the Chinese economy .40 per Mcf. It is worth about $17 a share. Moe & Jack [PBY] collapsed recently.S. Pep Boys has more than 700 stores. When the arbitrageurs dumped the stock.S. and growth in U. Its 2011 first-quarter 10Q gave some insight into the value of its real-estate holdings. including a $50 million breakup fee. In Asia. Euromonitor.000 customers and generates good cash flow. which are worth about $700 million. said gluten-free foods were a $2. We have done well in the past with auto-parts companies. This could be a game-changer for Smart Balance. down 50% in the past month.40 per thousand cubic feet from $4. Pep Boys just reported an awful quarter. another gluten-free brand.46 a share and yields 3. Natural gas has dropped to $2. Thank you.that is worth about $20. We are about two years away from a transaction.50 per Mcf two or three years from now. National Fuel Gas bought significant acreage in what is known as the Marcellus shale area.Y. which makes gluten-free products. MARC FABER Are things really as bad as they look? FABER: The global economy has slowed considerably.

which impacts China's trading partners and industrial commodity prices. Then we had a strong rebound with the index making a new high at 1. The best outcome for Greece probably would be to exit the euro zone. I anticipate further weakness in the second half of the year. What will the stock market do for the rest of this year? Most markets peaked in May 2011. This high wasn't confirmed by other indexes. or Russia. If you cut government spending meaningfully. Will things get worse before they get better? Yes. The Greeks don't want their pensions paid in a depreciating currency. and a large proportion are generated in Europe. When government is 40%. there will be compromises.422. Nor do they want austerity. But the new Greek drachma would depreciate by 50% to 70% against the euro.24 S$0.has been decelerating sharply. We won't see a federal deficit below a trillion dollars for a long time. Marc Faber's Picks Investment/Ticker Gold (spot.074 by Oct.06 1. Some 40% of S&P 500 earnings come from overseas. possibly much worse. 60% of the economy. 4 from 1.370. Lower demand for commodities hurts commodity producers. Brazil. But spending cuts will be back-end loaded and tax increases will be postponed. Central bankers will argue that more stimulus is needed. But the crisis has occurred in large part because governments have grown excessively large. Canada took this course in the mid-1990s.98 1. whether in Argentina. Corporate profits will disappoint. Africa.619. the Russell 2000. The S&P 500 fell to 1.30 40. The S&P 500 is vulnerable at this level. The outlook is grim for the federal deficit in the United States. Regardless of who wins the election.03 1. as their pensions and government salaries would be cut by 50%. 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 $1.98 0. although this can be painful in the near term.92 1. you produce more growth. and the Dow Jones Transportation index.63 0. 50%. There is no resolution to the problem in Europe because no one wants to accept austerity. such as the Value Line Index. The private sector produces growth. the economy won't perform well.81 .

dollar is overbought. Yet companies and consumers have little confidence. It will pay the interest.S. and Mexico. There is a chance that we could begin an extended bull market.522 last December from $1. Ascott Residence Trust [ART. OSCAR SCHAFER Oscar. but I would also own some gold shares. five years away.S. The company isn't exposed to regimes that are talking about nationalizing resources. I don't know if we'll have another recession.Singapore]. gold is relatively effective as a currency. stock markets are oversold. My preference is physical gold. Marc. especially given what is happening in Washington. can print money. Goldcorp [GG] is attractive because most of its properties are in the U. four. Thanks.Singapore]. If politicians focus on curbing the deficit.Singapore]. The U. but given that governments will print more money. 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. central banks can continue to print money and markets might move up.S. .How will the stalemate end? The breaking point could be three. But the economy hasn't performed well. In general. Canada. and the cost of living is increasing by about 5% a year around the world. The world is heading toward a major crisis. With quantitative easing. Since 2009 stocks around the world have more or less doubled.600. money flows into the hands of relatively few people. the private sector must provide the stimulus to the economy.Singapore] and Parkway Life [PREIT. But you are earning only 1. and the typical household hasn't been helped. It is safest to buy U. Treasuries because the U.6%.921 in September. With the federal deficit so large and interest rates so low. The correction could last longer.Singapore]. It rebounded to $1.S.Singapore]. As a group. Cache Logistics Trust [CACHE. and gold is oversold near term. Frasers Centrepoint Trust [FCT. that is what the market is worried about. K-REIT Asia [KREIT. Mapletree Logistics Trust [MLT. which have been decimated.Singapore]. could surprise to the upside. but with the fiscal cliff coming. despite the poor backdrop? I still like my January investment picks. Among them I like Mapletree Commercial Trust [MCT.795 in February and is back down around $1.S. I am very negative about the outlook longer term. and stocks. could become the best place to invest. I am also warming to gold shares. the U. In the meantime. Singapore REITS look OK.. So you're recommending equities. The U. government-bond market is overbought. You are getting a negative real return. which are now cheap compared to most other asset classes. Gold corrected to $1.S.

Why will it perform better now? The transformation is right on schedule. which increases earnings per share. How does that affect your investment decisions? In the current slow-growth world. A better analogy is IBM [IBM]. a tough. Xerox is using about 75% of its free cash to buy back shares and pay dividends. But the stock trades for only seven times earnings. People don't understand this situation yet. Then the U. I look for companies that can shrink their share count.S. This half of Xerox grew 9% year over year in the latest quarter. Xerox [XRX] is an example. The traditional print business faces challenges as people print less. Xerox can grow its revenue by 2% to 3% a year. most people are surprised. and alimony disbursements. Today Xerox is in the process of a transformation that will make it look very different from the old copier company. and has begun to see accelerated growth. could once again shine.96 Under the stewardship of Ursula Burns.S. the services provider it acquired in 2010.S. Declining stock prices beget declining stock prices. services have come to represent more than 50% of revenue. The company specializes in business-process and information-technology outsourcing. Downside is minimal. will be the best place to invest not only relatively. Recent stories have highlighted a resurgence in manufacturing in the U. which isn't a lot.Are you kidding? When I mention this. and handles such diverse things as managing toll-road payments. These are long-term contracts and solidly profitable. in industries such as steel and televisions. Oscar Schafer's Picks Company/Ticker Xerox/XRX Covanta Holding/CVA Source: Bloomberg Price 6/6/12 $7. Major transitions . and the free-cash-flow yield is 17%. That makes me think I'm more right than wrong. which will lead to deficit reduction and a better atmosphere. but absolutely. I'm basically a conservative fellow who thinks the glass is half-empty. but some of the decline is offset by an increase in color printing. But evaluating it as one does Hewlett-Packard [HPQ] or Dell [DELL] completely misses what has happened in the past few years. With industries moving back here and energy independence just around the corner. But things are starting to look half-full. Medicaid payments. Xerox successfully has integrated ACS. Free cash flow will approach $2 a share by 2014. Apply its current multiple and the shares could double. no-nonsense CEO. but the stock has yet to recover from a selloff in 2008. the U. The market considers Xerox an oldline tech company with secular challenges. You recommended Xerox in the past.44 15. Better growth will lead to higher tax revenue.

. four in China. We have known the management team for years. This equates to more than $2 a share of free cash for a stock that is trading below $16. It falls between of the cracks of a waste company and an energy company. I won't describe it as an exciting growth company. Covanta could catch the attention of private-equity investors focused on infrastructure. Investors also worry about how state and municipal budgets will impact long-term contracts. dividends and special dividends. In the meantime.000 tons of metal and generates 10 million megawatts of electricity each year. and one in Europe. The company has long-term contracts to dispose trash and is paid by the ton. Ebitda will grow significantly when the plants come online. and when natural gas prices are so low.one in Ireland and one in the U.1 billion market cap and owns and operates 41 waste-toenergy facilities in North America. there is greater demand for Covanta's services as new regulations make landfill disposal increasingly challenging.K. Covanta sells the energy that is generated and the metals that are recovered from the trash-disposal process. It recycles 430. it is a reliable free-cash generator. In less than two years the company has returned $600 million to shareholders in buybacks. energy prices are depressed. Compare that to where bond yields are. But the early signs at Xerox are encouraging. What else appeals to you these days? Covanta Holding [CVA] has been ignored and misunderstood. If the company proceeds with these projects. you get an option on some large development projects in Europe -. As older contracts roll over at lower rates. it doesn't get much attention from Wall Street. The board and management recognize the value in their own shares. Given its stable cash flow and the long-term nature of its assets. this becomes a head wind. The current yield is almost 4% and management is committed to buying back shares and growing the dividend. we suspect they will accelerate share buybacks and increase the dividend. Thank you.are never easy. If anything. but like Xerox. What is restraining growth? Covanta sells some of its energy on the open market. Oscar. The company has a $2. This accounts for more than 60% of revenue. 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. Covanta is a leader in generating energy from waste. You're getting a 13% to 14% free-cash-flow yield on a stable business. It processes more than 20 million tons of waste annually in North America. and there was a lot of skepticism around IBM's transition away from hardware. If they don't move forward. As a result.

Price 6/6/12 $40. I cut my position nearly in half. You aren't investing here for economic reasons. Turmoil there could force the Fed's hand. The policies prescribed to boost the economy aren't going to be successful. government is trying to delude people into thinking we can get out of our financial mess in a painless way. but based on what the government will do next.03 . the U.921. Is another round of quantitative easing coming? It is highly likely. is preparing to succumb. Bernanke studied the Depression but learned the wrong lesson and is applying the wrong cure.000 gold. Fred Hickey's Picks Company/Ticker Agnico-Eagle Mines/AEM Hecla Mining/HL Canadian Dollar Source: Bloomberg These views suggest you still like gold. you want to sell. address longterm entitlement spending. Governments are manipulating economies by suppressing interest rates. The U. The price of gold has fallen by more than $300 an ounce from September's high of $1.FRED HICKEY You were worried about the world in January. The excess enthusiasm has been taken out. which will give the Fed cover to do what it wants. Eventually we will have to bring our budget into balance. tax increases slated for next year will be reversed. When they print money again. Even the U. Greece will hold elections June 17. If the Republicans win the White House and both branches of Congress in the November elections. They are spending way beyond their resources. there will be a sharp rally in the market. The risk is it won't last. There will be a lot of turmoil in the next few months. But all this will change when the market gets a hint of QE3. in June or later in the summer. You want to invest aggressively as soon as you know QE3 will happen.S. It is hard to believe you can have so many disbelievers in the 12th year of a bull market. Excess money and negative real interest rates create a perfect environment for gold.93 4. The Fed's policymakers meet June 19. Are things worse now? Hickey: In every instance.S. Also. has had three poor employment reports in a row. Piling up trillion-dollar deficits for four consecutive years and imposing significant tax hikes at year end don't encourage confidence. But that is a big if. from Europe to China to India to Brazil.66 $1=C$1. Central banks are printing money around the world. We are also going to hit the federal debt ceiling again. we could see $2. things have gotten worse. and endure a period of austerity. businesses don't invest. By year end. but that is the case.S. and when that is lacking. After the rally has gone on for a while.

I'm not a market technician.S. I am buying mining stocks because of their severe underperformance relative to the price of gold. Hecla could resume production by early 2013. Any sign of that yet? Tech has been in a bear market since 2000. The company will have one more weak quarter. What is your target price for the stock? It could go to $70. The company has only two producing mines. Goldex. but don't put it in the U.S. and Goldex returns to production.25. versus 35% in the U. The company earned 59 cents a share in the March quarter.Are you buying bullion or mining shares? I sold and repurchased some bullion. and one of its best. The company has six mines. Agnico wrote off the full value of the mine. Silver is trading at $28 an ounce. but those estimates look low and don't account for any contribution from Goldex. and federal regulators shut it down. Mostly. in Quebec. Shares spiked to $11. Canada has a stable government and isn't printing money. and Hecla Mining [HL]. Both were hammered by gold's decline and a mine shutdown. was shut late last year after some rock movements. Now it is $40. As investors start anticipating the reopening.. and their corporate rate is 15%. and could top $50. Big tech companies are heavily exposed to the international slowdown. I would buy Canadian dollars. That is because they will realize some value from the mine. Analysts look for Agnico to earn about $2 a share this year and $2. Once gold goes up. which is now about $840 million. They increased the dividend and paid back about 10% of their debt.S. Higher silver prices and the resumption of production will propel earnings. and recent earnings reports from Hewlett-Packard and Dell were . Agnico-Eagle hit a high of $88 a share in December 2010. After 8. Now they are trading for $4. but it is likely to be worth something. a silver stock. Any other recommendations? Hold cash. What is the dividend yield? The stock yields 2.5 million man hours of operation without problems. the Idaho mine had two fatalities last year. They generated tons of cash. I like Agnico-Eagle Mines [AEM]. They are cutting tax rates. in Alaska and Idaho. You have been expecting technology stocks to bottom. dollar. but the stock chart looks excellent. earnings will rise. the stock price could pick up later this year. a gold stock.1%. or higher if gold prices go to record highs. Hecla is the largest silver producer in the U. Debt as a percentage of gross domestic product is far lower than in the U.33 as silver was climbing to near-$50 an ounce.S. and is cheap. A bottom is forming. and has been operating for more than 120 years. The company could earn as much as $3 a share.32 in 2013.

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