Experts See Puny Economic Growth, Buoyant Stock Returns

Monday, 17 Dec 2012 08:41 AM

By Dan Weil

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Esteemed money manager Jeremy Grantham of GMO and esteemed economist Robert Gordon of Northwestern University see miniscule growth ahead for the U.S. economy.

That forecast may not shock you, but the fact that both of them expect solid stock market returns while the economy dawdles may indeed throw you for a loop.

The basic argument is that the weak economy makes investors so pessimistic that they push stocks to oversold levels, setting the stage for a rebound, The Wall Street Journal reports.

Editor's Note: The Final Turning Predicted for America. See Proof.

The two experts see the economy growing much less in coming years than its 2 percent, post-Civil War average. Gordon is worried about weak technology innovation, and Grantham is concerned about the availability of cheap energy.

But Gordon tells The Journal he has "at least 80 percent" of his assets in stocks. And Grantham sees solid performance ahead for blue chips.

Studies show that stocks perform better in economies with weak outlooks than strong ones, writes The Journal’s Jason Zweig.

“That is because investors chronically overpay for the hopes of a bright future and put too deep a discount on the prospect of slow growth.”

Bank of America analysts see stocks rising to record highs next year, but not because of economic weakness, quite the contrary.

"Once the fiscal cliff is resolved, business confidence and spending should come back. We are also optimistic about housing," says BofA economist Ethan Harris, according to CNBC.

Editor's Note: The Final Turning Predicted for America. See Proof.

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