Maltbie's Minute on the Market: Does Europe Matter in 2012?

Robert Maltbie |

In the video, I discuss what the U.S. economy and market can expect assuming a worst-case scenario in Europe. As we move on through the future, I expect the U.S. economy to grow, while Europe deals with a secular, long-term decline. It's what I call a Malthusian Crisis Retro-Engineer. Simply put, a classic Malthusian crisis is when population grows geometrically and resources don't.

With that said, the U.S. shouldn't be too impacted by this. As we start to decouple from Europe some time next year, the fundamentals, as they have this year, will begin to diverge from this point on across the ocean. One of the key drivers will be the money supply as measured by M2. I think it bodes favorably for GDP growth, earnings, etc.

Earnings estimates have been ratcheted down over the last few months because of the on-goings in Europe--expectations are a plus 7-percent to 8-percent for the S&P 500 for 2012. At 4-percent GDP growth, we should easily get there on the base of a market that's trading very undervalued relative to where P/E multiples normally are with this type of earnings growth.

Considering that the earnings estimates have been ratcheted down for the last month or two with what's going on in Europe. The expectations are a plus 7-8 percent, maybe for the S&P 500 for 2012. At 4 percent GDP growth should easily get through perhaps better on the base of a market that's trading very, very undervalued relatively to P/E multiples normally are this types of earnings growth.

So net-net, investors should try to stay positive, and try not to read too much into the headlines. Focus on companies with good dividends, share buybacks, insider buying and that have limited exposure to Europe to stay safe.

Thanks for joining me for this edition of Maltbie's Minute on the Market.

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Symbol Name Price Change % Volume
TEF Telefonica SA 10.08 -0.18 -1.75 2,947,607

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