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Jim Paulsen: Stocks May Surge to Record Highs in 2012

Friday, 21 Oct 2011 08:59 AM

Jim Paulsen, the chief investment strategist at Wells Capital Management, believes that the U.S. economy could surprise investors, leading equities to all-time highs in 2012.

Paulsen thinks that the economy will grow by 3 percent in the third quarter and has the potential to accelerate from there.

“The real issue is going to be what goes on next year. The reason we've come to the upper end of the trading range is because people have backed away from the recession view,” Paulsen told CNBC.
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The United States economy has been “self-medicating” on a potent mix of low mortgage rates, faster money supply growth, and cheaper energy.

The emerging markets, meanwhile, have pulled off a soft landing and could do better in the year ahead too, he said.

The picture in Europe is ugly but might not matter, he said.

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(Associated Press photo)
“I think Europe could flatline and we could still grow, kind of like we did in the early ’90s when Japan went into depression and the rest of us continued to grow,” Paulsen said.

“Looking ahead, what's going to drive this, I think, is does the United States not only avoid recession but does it accelerate into next year and grow 3 to 3½ percent? I think it's going to be.”

Annualized U.S. GDP registered 1.3 percent in the second quarter, versus 0.4 percent growth in the first quarter, according to the Bureau of Economic Analysis. Huge, automatic spending cuts loom if a so-called “Super Congress” committee fails to come up with $1.2 trillion cuts in roughly a month’s time.

So far, media reports suggest the bi-partisan committee can’t even agree on what to order for lunch.

“I feel good at the fact that the Fed is out of bullets, that the fiscal authorities are gridlocked, and we’re en route to trying something we have not yet tried in this entire episode, and that is relying on free-market capitalism, and I think we’re going to be encouraged by the results we’re going to see,” Paulsen said.

The “misery index,” which combines inflation with unemployment, rose to a 28-year high last month. It’s at 13.0 now. The index peaked at 20.76 in the final year of the Carter administration, steadily declining to end up lower than 10 at the end of the Reagan years.

The index spent the entirety of the Clinton and George W. Bush presidencies in single-digits.

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Jim Paulsen, the chief investment strategist at Wells Capital Management, believes that the U.S. economy could surprise investors, leading equities to all-time highs in 2012. Paulsen thinks that the economy will grow by 3 percent in the third quarter and has the potential...
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Friday, 21 Oct 2011 08:59 AM
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