“Someone is making money in every market cycle,” Bob Froehlich, executive vice president and chief investment strategist for The Hartford, said at the 2012 ASPPA 401(k) Summit on Monday.
In 2012, Froehlich (left) described two major positive shocks to the global economy he expects to occur, although because U.S. investors tend to focus on the negative, they’ll probably miss them.
First, Europe is not heading to a recession, he said, adding that it was important to separate geopolitical issues and economic issues. Geopolitical changes will occur on a much longer time scale, if they ever do.
“They’re not going away,” Froehlich said emphatically.
“Recovery begins and ends with Germany,” he said. Germany is the No. 2 exporter in the world, he said, after China. It may not export a lot of goods, he said, but what it does export is expensive. The country’s export market is $2 trillion, and if the euro falls, German exports will explode. He suggested that the European Central Bank should follow the Federal Reserve’s lead and lower interest rates to 0%.
The second major shock to the global economy, Froehlich said, will be that over the next six months, China will “declare victory over food inflation.” China will find a way to reduce food costs, he said; it will not fall victim to the kinds of unrest and uprising seen in the Middle East in the last year.
Froehlich was confident that China would not suffer a hard landing, as many analysts have predicted. He sees the country enjoying growth of between 7% and 7.5%.
Growth in the United States will “muddle along,” he said. In the United States, trend growth is 3%, but Froehlich doesn’t expect growth to get any higher than 2% this year. Weakness in the residential real estate market will continue through 2014, he said, dismissing some analysts’ suggestions that the housing market has been improving lately. “After a bubble bursts, it takes a decade to recover,” he said.