The Investor Roundtable is always one of the most interesting workdays of the year. I invite a group of Twin Cities investment srategists to the Star Tribune for a conversation about the markets over lunch. The conversation is always lively, informative and far too long to fit in the newspaper. So this year, I thought I'd post the conversation on my blog for those of you who wanted to read the extended version of the forum. The print paper version is a good, quick read, but if you're an investor, the extended version is for you:


Q: Why was 2011 such a tough year to predict? Why didn’t the market perform as well as you’d hoped?

David Joy, chief market strategist, Ameriprise Financial: If you look at the trajectory of the year we were buffeted by a series of shocks starting out with the earthquake and tsunami which inflicted real damage on local manufacturing system. Then we started to recover from that and then of course we had the Greek debt crisis flail up and the debt ceiling debacle in Washington. And that really paralyzed the US economy in the month of August. We went through in the second half of the year a series of summits to end all summits that fell short of expectations. So it was a series, in my view, of shocks and headline risk that the market faced and I think that was a preoccupation of the markets that just allowed us to get no traction whatsoever.

Roger Sit, chief investment officer, Sit Investment Associates: We expected in our firm a sub-par economic recovery. And when I say sub-par I mean 2.5 percent, 3 percent GDP (gross domestic product) versus a traditional recovery which would be 5 percent GDP growth. And even relative to our expectation of a sub-par recovery, it was even more sub-par. We’re seeing growth closer to 1.7 versus 2.5 to 3.5 and next year it will probably be between 1.8 percent and 2 percent. I think a lot of our hope that things were starting to settle down. At least we felt that both in the US as well as abroad there would be some resolution or some movement toward resolving these problems and that would have kept the market more optimistic.

Russell Swansen, chief investment officer, Thrivent Financial for Lutherans: I agree with what Roger said but what I think it’s done is it’s affected investor psychology. It’s interesting to note that the fortunes, corporate earnings, have actually been much better than the economic statistics would suggest. I n the third quarter of this year, sales were up over 10 percent in the S&P 500 versus a year earlier and earnings were up more than 14 percent. The fortunes of companies have actually been pretty good. I think investor psychology has been weighed down by these economic factors and in particular, the employment situation and the lack of resolution on the debt in this country and also in Europe.

Phil Dow, director of equity strategy, RBC Wealth Management: Everybody’s looking over their shoulder at the past and are kind of worried and apprehensive. We had two real bouts of sincere thinking that we were going to go into a double dip – once in the spring, once more recently. We came out of both. But some of the more prominent readers of the tea leaves, who look at ISM manufacturing rates and forward looking indicators actually predicted a recession this last time around, or the high likelihood of one, so we have to live with the harbinger of fear with that.

The second thing, that I know affects me and our clients, is the uncommon volatility of the market today, principally laid at the feet of the high frequency trading firms. If you look at a world where nothing makes sense and the Wizard of Oz is behind the curtain pulling the strings, you begin to not trust anything. People just don’t feel good about taking risks any longer. I’ve been in the business since 1971 and this is the second time in my career when I’ve seen stock ownership disrespected like this. It’s powerfully negative right now.

Elizabeth Lilly, senior vice president and small-cap portfolio manager, Gabelli Asset Management: What occurred in Washington in August and the partisan politics that occurred scared people to death. The fact that the debt got downgraded – I don’t think the average citizen understands the implications of that – but the fact that the Republicans and Democrats couldn’t set their partisan politics aside and figure out the right thing for this country scared a lot of people. After that whole debacle in August, when you saw that they could not get their act together, it was an embarrassment for the country and the volatility in the market spiked right after that and it hasn’t slowed down.

Then the whole debt commission and they couldn’t get their act together. I read a quote, “It’s almost like you’ve got these erratic politicians driving the car and we’re all in the backseat. And they’re not even looking through the windshield, they’re too busy arguing amongst themselves and the car is going off the road.” It’s a scary time for this country and the politicians are not making it easy on the average citizen and they won’t take responsibility.

Erica Bergsland, director of research and trading, Advantus Capital Management: I think the average investor just feels buffeted by the market and the stock market. We also have to look at bond yields and the Fed[eral Reserve’s] policy which has pushed interest rates down to the point that you can’t earn a real rate of return compared to inflation based on Treasury securities and that’s a trend that we see continuing – that investors are going to be continuing pushing to look for yield in other parts of the investment world whether it’s corporate bonds or dividend yielding stocks.

Joy: I agree that the consumer, or individual investor was traumatized by the events of early August, but it’s interesting to watch how the consumer has since rebounded. The fact that the world did not stop turning after the downgrade, I think may have come as a surprise to those who didn’t know what was going on, but it has been enough I think to allow people to start to loosen their pocketbooks once again. We’re beginning to see it in Sept. a little more and in Oct. consumer spending now picking up a little bit and it betrays a sort of natural tendency for an economy to repair itself as long as external forces don’t overwhelm.

Lilly: The poverty rate in this country is at 15 percent which is the highest it’s been since 1993. I think we’re all going to be fooled and Jan. and Feb. are going to come and people’s statements are going to come. They’re going to say “Uh-oh do I pay this bill or do I pay my mortgage?” I think it’s a head fake.

Sit: If you look at personal income, a big chunk of that personal income is really coming from Government entitlements and that’s why President Obama and the administration and Congress are pushing hard to not upset the apple cart too greatly. If the bulk of personal income that is increasing at a very gradual pace is coming from entitlements, plus you’re seeing a decrease in the savings rate, I agree that there could be a huge head fake.

But I think what’s really happening are two things: The consumer is tired of living under austerity. They’ve done it since 2008; now they want to get out there and spend a little. And you can see that there’s certain type of retailers that are doing better than others. But second, it’s the haves and have-nots. The higher net worth individuals are maybe cutting back but not cutting back that significantly so they’re still doing well and you have the Coaches, you have the Tiffanys, you have the higher end doing fine. And then you see the dollar stores – Dollar Tree, the Ultas [big box cosmetic store], the Auto Zones doing well because you have a divergence in terms of what the consumer is doing. They want to spend on something.

Joy: Consumer deleveraging has gone on now for four years. Debt obligations are back to where they were in 1994 in terms of how much disposable income per month is required to service it. So a lot of repair has taken place. It hasn’t run its course and it certainly hasn’t run its course in the housing sector – that continues to see deleveraging. But some degree of balance sheet repair has occurred.

Sit: But I would argue that balance sheet repair occurred because there are a lot of consumers who walked away from their mortgages or declared bankruptcy. Unemployment - depending on which number you believe – is around 8.5 percent, but it’s likely 16 or 17 percent. Is the deleveraging number more because people just walked away from their debt, or is it because they actually are feeling better and things are improving?

James Paulsen, chief investment strategist, Wells Capital Management: I think we’ve got one of the most crisis-phobic cultures that we’ve had in the post-war era. We’re quick to jerk on any second coming of a crisis. And I would argue that it’s being stretched against the reality on the ground. There’s a thought, for example, that the job market was lousy this year, yet private job creation in 2010 was just shy of 100,000 [jobs] per month. This year, it’s just shy of 155,000 per month. The unemployment rate fell more this year than it did last year. Profits continued to go up. Debt service burden was a record high in 2007; it’s going to end this year at almost a record low. Corporate fundamentals remain very strong. We’re still up almost 100 percent in total return from the lows of March 9, 2009. And so far, nine quarters through this recovery, the rate of gain of real GDP is just barely less than the average of the past two recoveries and total job creation in the first nine quarters is now right on top of the average of the last two recoveries.

So I think there’s a disconnect between how fearful everyone is and what’s really happening on the ground. Not that everything is great; it’s not. What needs to happen is we get to a point where we decide that we’re finally in a recovery. Not that we’re actually in one, but we decide we’re in one and then that crisis phobia will start to fade.

Dow: And the main sign of that will be recovery in the stock market?

Paulsen: Next year, if we did get up in the upper 1400s, one thing that will change is that the media will start talking about being very close to a new all-time record high. And that could start to change the rhetoric.

Lilly: I think there’s a powerful shift occurring in the economy that plays into what Roger talked about: The middle class in America is being erased. You’ve got the haves and the have-nots and the middle class in the sense of the manufacturing jobs that were created coming out of the last recession are not being created. They’re all overseas. Jobs are being eliminated all over the economy so that the unemployment rate, which I still argue is really close to 17 percent, is not going to come down for a really long time. That is going to have a very powerful force on this economic recovery because you’ve got the haves, which is top 10 percent of the workers receiving 50 percent of the income, and they’re going to spend like this, and then you’ve got the rest of the economy. And so this middle class that used to fuel the economic recovery is not going to be there, so I think there is going to be tough sledding for a while.

Q: How do you invest in a market like this because clearly you look at the fundamentals and job improvement, etc and say the market should be doing this, but it’s behaving entirely different?

Paulsen: It’s important to realize that even in recoveries you don’t have up markets every year. In the early nineties you had a very similar period there from ’93 to ’95. It’s similar in 2003-2005. What [ the market] kind of did is not that dissimilar. The volatility is certainly elevated, that is very noticeable. I think one thing for investors to remember in a year like this is there is good stuff going on in your portfolio. The fact of the matter is when the European crisis started, the market was selling at 18.5 times trailing earnings. We’re now selling at 13.5 times trailing earnings. When the European crisis started, we had a 3.5 percent competitive 10-year Treasury rate. Now we have 2 percent. So profits have continued to grow and stock prices have gone flat which means your portfolio as it exists today is much cheaper. There are still good things going even in a flat year.

Bergsland: I think we have to remember we came off a 30 year debt super cycle where our economy was fueled by lower and lower interest rates and more and more debt and this isn’t just a phenomenon here in the United States but it’s a developed world phenomenon. We see this being an overhang for quite some time and we see the political aspects as driving significant volatility going forward because frankly in the developed world, we have some tough, tough problems to solve and they’re going to involve sacrifice and people don’t like to vote for sacrifice so it tends to be a very bumpy ride.

Sit: The markets up until now have been very tightly correlated, so across the board stocks have been moving in the same direction. The market’s not being driven by individual stock fundamentals. It’s being driven by headline news. However, this isn’t dissimilar to what we’ve seen throughout history. If you look at every major crisis, the market is driven by headline news for a while. Then as you peel away the layers and the dust settled, you figure out what are the areas where there are opportunities and where there aren’t opportunities. I think we’re going to shift in that direction we’re going to be shifting more to a stock-pickers environment or a securities picking environment where fundamentals are going to matter. And there are companies that have done quite well. For example, McDonalds. That stock is acting spectacular. Take Polaris right here in town. It has done terrific. Take Ulta Salon which is a big- box cosmetic retailer. They’ve done great. Not all companies have acted poorly like the market.

Doug Ramsey, chief investment officer, the Leuthold Group: I have very little confidence in divining the economy, even more so than usual this year. I just tend to focus on values and the bankcost of protecting yourself from what sort of ails the world right now just seems over the top. Look at two of the best performing asset classes this year: long term bonds, the longer the better. The 30-year zero coupon bond is up 55 percent year to date. So the long-term bond is the ultimate deflation hedge and it’s been a huge winner this year. Then move over to the other side of the spectrum, gold being the ultimate inflation hedge. That’s up 20 percent this year. So you have extreme betting on an inflationary outcome and a deflationary outcome. Not both are going to be right.

What worked in 2011 was the fear portfolio. It was long-term bonds, gold. Within the stock market, if you stayed just within the US and just within purely defensive stocks meaning health care, consumer staples and utilities, you’re actually up 10 or 12 percent this year. Everything else is down 10-15 percent. So it just seems to me even if the consensus is right and we continue to have a sluggish recovery, or perhaps even a shallow recession next year, a lot of that is already priced into the fear-based assets. Contrast that with the values that you see on US and foreign equities.

A year ago I was focused on the values outside the US. Turned out foreign stocks had a poor year, but I looked at a screen we do monthly and the top 50 companies in the US are trading at 9.9 times 2012 estimated earnings. On a three-to-five year basis, that’s going to be pretty tough math to beat if you’re a bond investor. – almost impossible to beat I would argue even if you only get a dividend return from stocks, which I think is highly unlikely. Europe is trading at about 10 times what we call normalized earnings – smoothing out the business cycle – down from 25 times four and a half years ago. And I don’t think 4.5 years ago anyone argued that old Europe was going to be some dynamic growth engine. I think the problems of demographics and debt were pretty well understood. Well here we are 4. 5 years advanced into that game – I’m not saying the debt solution is going to be a pretty one but at least it’s out in the front now and values are 60 percent lower.

With respect to emerging markets, we probably have some more caution there because it’s clear that the emerging markets are slowing, partly in response to the problems in Europe. You’ve got three out of the four BRIC countries – you’ve got China, Brazil and India – all with inverted yield curves. So that could be the surprise of 2012 is that the emerging markets, which always provided this nice undertow, even during the darkest days of ’08 and ’09, could disappoint.

A lot of the negative sentiment in my mind is priced into specifically equities and it’s priced in in a negative way into long-term bonds and gold, which are going to severely underperform. I go back and forth on gold. Long-term Treasuries are clearly a bubble. I think gold is probably overplayed its role as a defensive asset. I’m probably going to start to look for that to decline in earnest next year. Q I’m sure there are people who haven’t been reading the daily stories about the European debt crisis. Explain to them what is going on and what it means for their 401(k)s?

Swansen: The problem in Europe is that a number of the countries have borrowed too much and it’s not viable. In a nutshell, a lot of that debt is owned by European banks and that creates a concern about the banking system. And the whole argument right now is really how to recapitalize the banks. If you remember in this country when we had our crisis back in late’08, the federal government put TARP money in as capital. They forced the banks to take it and eventually they paid it back either out of earnings or because they raised the capital themselves.

Secondly, how will the countries that are borrowing too much money cut their spending or raise their revenues so that they can balance that more effectively. The reason it’s important for US stock investors is that a lot of people don’t realize that about 40 percent of the earnings of large cap US stocks come from overseas. The largest share is Europe. So if Europe has difficulty, that’s not helpful even for domestic stocks.

Sit: We’re a global economy now. What’s going on in Europe is spilling over to the rest of the world because Europe is an important trading partner not only with the US but with Asia. And as I highlighted earlier, we’re in a very sub-par economic growth environment. So we can’t afford for any parts of the world to be a more significant drag on the global economy than it already is. So if Europe is causing a drag and that drag may have a drag on the US as well as a drag on China, then that’s dragging down the global economy and a weaker economy means lower corporate earnings growth and lower corporate earnings growth is going to have negative effect on market.

Lilly: And they’re all tied into one currency and you’re trying to get them all to agree to the same plan and they can’t all agree. Imagine taking the governors of all the 50 states in the United States to agree on one economic plan or economic currency. It’s not going to happen. The other problem is you’ve got these countries that are used to retirement at 50 [years old]. These are not problems that can be solved by an economic plan. They have to change the way they think about the work day and the work ethic. It’s a structural issue, just like it is in the US. News comes out these countries can agree on a plan and the market goes up 5 percent. It’s not that simple, just like in the US it’s not that simple.

Biff Robillard, president of Bannerstone Capital Management and hedge fund manager at Robillard Capital Management: We’ve had a secular bear market for some time. The most important thing to convey to investors is you just have to gut this out. I came to Wall Street in the early ‘80s and looking back, over time individual investors, by sheer fatigue, had positioned themselves absolutely incorrectly for the 1980s and the 1990s. They had two-year CDs and they had money market accounts and they had no stocks and they were long gold and boy were they ready for the next secular bear market and then everything seemed to change in the Volker era and the Reagan era. The economy somehow changed, a secular bull market began, and it took many years for investors to realize this was occurring.

We’re 10 or 12 years into a secular bear market and we think investors have to be careful about just getting worn out, becoming too risk averse and getting ready for the next big one. We’re bullish about what’s going on in Europe. Short term it’s very dangerous and may force equity prices much lower and it may have profound and dire implications for the economy. However, like the late 70s and the end of the inflation era, we’ve been in a 30-year bull market that has allowed governments to float debt infinitely.

That’s ending, that’s very good news. We have to have an end to the growth of government balance sheets to get to whatever’s out there for us. This crisis is necessary to get us there. So the news for the stay at home investor is quite good. You can’t stop drinking until you realize you’re drinking too much and you can’t stop spending more than you’re taking into the Treasury until you recognize that you’re doing that. Investors must be very, very cautious about investing for a 12 or 18 month time horizon and responding to very bad news and inadvertently getting themselves positioned inversely to what will actually provide the best returns for a very long term horizon.

Paulsen: Europe broke out in Jan 2010. The S&P 500 was almost 1100. Since it broke out - it’s been two years - the S&P 500 has been no lower than when it broke out and if you would have bought and held you would have better than 8.5 percent annualized returns against zero percent cash. One point I’d make to 401(k) investors is why in the hell worry about it? Just stick with your investment and you make 8.5 times what you could have made in cash. There are so many people that got scared out along the way and they screwed up.

The other point I want to make is regards to volatility. If you look at daily volatility or weekly price volatility, over the past 10 years it’s gone up to the highest level since the Depression. But if you look at monthly price volatility or quarterly or annually, it’s no higher in recent years than it’s been throughout the post-war era. So I think many investors that have multi-year horizons are being unduly influenced by watching daily price moves. I think we all are. But if we have a longer horizon than a week, the reality is risk hasn’t really gone up. Maybe the best thing to do with the headlines on the Eruopean daily crisis is to tune in only once a month and you find out it really hasn’t changed a hell of a lot. It’s been terribly and emotionally disturbing day in and day out, but you look up and it’s unchanged since the year end.

Lilly: I think investors are still used to 20 percent returns and so that drew everybody to these news channels and this sense of your 401(k) going up 20 percent a year. Corporate profits can’t grow 15 or 20 percent a year. We have to rejigger our expectations of corporate profit growth.

Sit: You can go back in the last year and look at 5 percent moves in the market in a day. This gets to the point of every individual has to decide: what is their time horizon? If you’re a retiree that’s 80 years old, they can’t sit tight. They have to decide what their asset allocation is and they may not be able to be in equities. They may have to be in something that is very low risk, low yielding bond type of instrument. That’s the recommendation I’d give to the 401(k) investor. What is your time horizon, how much longer do you intend on working, what’s your risk profile, and invest accordingly, realizing that if you have to get out of the market, you’re going to have to suck it up and potentially miss out on the snap back.

Q Last year, most people said dividend paying, large cap stocks are the place to be. Is that theme going to continue through 2012?

Swansen: Large multinational companies, unlike the dot-com area are cheap. They’re the cheapest part of the market right now. They’re cheaper than bonds, they’re cheaper than mid and small cap stocks. These are companies that have tremendous wherewithal. Earnings have been growing over 14 percent over the last year and they haven’t really budged that much. You can find stocks surprisingly whose dividend yield is higher than their bond yield. To me, that just doesn’t make sense. That illustrates pretty clearly the disconnect between bond valuations and stock valuations.

Lilly: We would argue that we are in the fifth wave of mergers and acquisitions in this country. Locally, Syhovis, a $250 market cap company is being bought be Baxter. Where a lot of the transactions are occurring is in small caps. If you look over time where the highest returns have been, it’s small caps. I’m a contrarian at heart and I would argue that when people start all believing that this is the right strategy to take, you need to go in the other direction. People have been talking about large caps now for a while, I just think it’s dangerous.

Swansen: They’ve been talking about it but if you look at retail mutual fund flows, for months they’ve been flowing out of equity funds of all types and into bond funds and driving those bond valuations higher and those yields lower and lower and lower and that can’t happen forever.

Q: That’s the eternal question. How do you try to explain to investors that that is not the safest strategy even if that’s what their heart is telling them?

Swansen: If you are a risk averse investor, there are very few good choices now. Most of those choices offer very low return. We all know bond yields are extremely low. That’s the difficulty right now. That’s the dilemma.

Robillard: We have a funny saying that we’ve used a lot in the past year: Comfort is the enemy. And in investing it often seems to be. The biggest hobgoblin for individual investors is fatigue. Just don’t leave the game. Don’t leave the table. Making a deposit at the bank could be a fateful error. Many of the things we fret about are ultimately fixable. We can’t understand how they will be fixed, just as people were often wrong about predicting the demise of inflation and other systemic, intractable problems. We may be here in 10 years, the planet earth will still be here, and if investor optimism begins to evolve yet again, there’s risk that the fellow who soldiers along in a 401(k) in 25 years and then concedes will miss the goodies.

It’s very easy to become pessimistic. It’s a very easy case to made. It’s a very sound case. But the question is how is your future best served for your investor and is that future best served by joining the crowd, positioning assets in a rather pessimistic fashion? Perhaps? But you should stop and think about the alternatives.

Joy: The first half of 2012 could be choppy but I do think there is good value here. On the equity side I like US Large cap stocks. It’s been mentioned before. I think the dividend story is still a good one. I’m also more interested in growth stocks.

I’m encouraged to some extent by the change in monetary policies that we’re seeing in the emerging markets. I don’t think that’s going to have much of an effect until second half. But I think at that point we should see a little bit better economic backdrop globally and I also expect that the European debt crisis will flare up in the first half of the year.

Ramsey: I do sense that the dividend stocks is a popular theme. The difference vis-a-vis 12 years ago is that the mega caps were 35 times forward earnings and wildly popular. Today I wouldn’t say they’re wildly popular but they’re certainly preferred and they’re only at 10 times forward earnings. At some point the math overwhelms the sentiment. I’d rather be a contrarian, but the math is just too compelling. I might advocate something a little more jazzed up for an institutional investor but these stocks are on sale relative to their long-term history and they throw off income. It’s certainly north of where Treasury instruments are. I do like that space even though it’s not a unique idea.

We put together a package of European mega-caps two or three months ago. A lot of those big European multi-nationals outsource a big chunk of their sales and earnings. So to the extent that there’s a mega-cap European stock fund, that might be interesting. We’re keeping fixed income allocations low. Duration very low and we’ve actually played the upside of the precious metals run and we’re trimming. I think regardless of the direction of inflation next year, I think the deflation bet is too expensive and the inflation bet is too expensive. People are looking at gold as a safe haven but it’s probably not.

Robillard: No precious metals, very short duration, low fixed income. Cash, really. US equities will be best. It was tempting to be too optimistic in 2011. We think it’s time for it to flip and in 2012 something is liable to go right and we want to be ready for that.

Dow: Today you can see how emerging markets are going to be a huge driver for years to come. I saw one McKinsey report that estimated the emerging market population into the middle class at 2 billion souls spending about $6.7 trillion a year. McKinsey predicts that will [grow to] $20 trillion in two years time. I believe there’s a renaissance going with corporate America and the exports market and it will continue. Buy big cap companies that do business internationally.

I like the dividend strategy from the standpoint of trying to buy a growing stream of income that can grow as much as 6 to 8 percent a year. You could double your dividend every 8 or 9 years. Within specific areas of the market I like engineering firms involved in building out the power grid and domestic oil and gas production and service.

Lilly: This is an election year. Republicans don’t seem to have a viable candidate and Obama is the all-hat-no-cattle president. He stands up and talks but can’t get anything done. And so I think if we can get somebody in office that can lead this country, I think fear will go down and the hysteria will go down and I think we’ll get much more certainty in the market and the market will go up a lot. If we can get somebody in the presidency that can lead this country and instill confidence, the market could be up a lot.

Sit: The best thing to do is invest in quality – the highest quality possible. Find the company, whether it’s the larger cap or smaller cap, whether it’s US, whether it’s international that is growing their revenue; companies that have pricing flexibility. Look for companies that are efficiently run. Look for companies that have very healthy balance sheets, strong cash flow. You’ve got to be in quality, quality, quality.

Swansen: If you’re a risk-averse investor it’s very difficult now. But assuming you’re an investor who has some risk tolerance and you can take a three year investment horizon, we like large cap domestic stocks and at this point really don’t have a bias for growth versus value. They have globally diversified businesses.

Bergsland: I might be one of the more bearish people in the room, but even I have to say there are things that speak for stocks. I would not recommend investors go out and buy long term bonds. It’s likely to be a bad deal over a long period of time. And conversely, stocks are likely to be a good deal over long periods of time at this level. But I also agree with Roger that if you are having a lot of sleepless nights - you’re worrying about whether your savings will send your kids to college or whether they’re going to allow you to retire, you ought to be looking at fairly conservative investment strategies.

Even within the stock market you can take a more conservative route. Buy a utility fund. Buy Real Estate Investment Trusts (REITS). Buy hard assets. There are things that are more conservative that aren’t as dependent on global growth that are likely to provide a return that beats bond yields at these levels.

Paulsen: I look at 2012 as the “gear year” in this recovery as far as confidence is concerned. This recovery is mirroring the last two very clostey. Both in the ‘90s and the ’02 recovery no one thought we were in a sustained recovery either. We were very doubtful. We were scared. And in year three, in gear. So the Fed started easing in March ‘91 when the recovery started and it was until three years later that they raised rates. They started easing in Nov ’01 and it wasn’t until the summer of ’04 that they actually raised rates again. So if the Fed doesn’t raise rates again until the end of next year, that will be right on schedule. And they’ll raise rates because the economy will gear. The unemployment rate will have sustained decline. When that unemployment rate is sustained, confidence comes up across the economy, including our leadership. I think that will make a big difference.

I think Europe will go from imminent calamity status to chronic problem status. That’s a huge change.