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Yoshikami: Investment Themes of 2013

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So political debt drama is behind us (at least for 45 days). You can expect that there will be continuing headlines as the debt ceiling approaches and throughout the course of the year. Democracy is very sloppy and inefficient but then that's why it is designed as it is; to avoid autocracy. It's unfortunate how messy processes can be, particularly when attempting to deal with America's difficult fiscal situation.

With this volatile landscape in mind, here are a few thoughts for 2013.

Uncertainty

As discouraging as it is to state, dramatic headlines and uncertainty are here to stay. The world is more connected than ever and is impacted by macro events like never before. For this reason, assessing headlines and economic/political conditions will be critically important. At Destination Wealth Management we have made this a hallmark of our investment process.

(Read More: A US Debt Default Could Roil Markets)

U.S. Equity Markets

I expect U.S. equity markets to have a reasonable year this year as risk-on remains the status quo. The Federal Reserve is committed to keeping rates low and, combined with an accelerating economy on a domestic and global basis, we expect GDP to bounce back. And because GDP will bounce back, equities will likely do fairly well.

International Equity Markets

After a lackluster 2012, we expect emerging markets to bounce back strongly given current reports of rebounding economic strength across many regions. China, for example, appears to be stabilizing and recovering. Brazil, which was a dramatically underperforming market in 2012, could very well see positive returns given their economies resilience.

(Read More: What Will It Take to Get the Fed to Stop Easing?)

Europe remains a fiscal disaster, but that is not to say that equities in Europe will not rise. With the postponement of Basil 3 regulations, Europe has been given additional time to stabilize weak countries such as Greece, Italy, Portugal, and Spain. It is our view that selected European assets and regions will provide opportunities for investors.

Fixed Income

Fixed income assets have continued to provide reasonable returns and some capital appreciation. However, one only needs to look at the bond market in the last 4 weeks to see the volatility associated with fixed income investing. The yield on the 10 year treasury has increased almost 20% which has led to the depreciation for treasury assets. We expect there to be continued pressure on fixed income prices as inflation begins to build in the economy.

In 2013 we expect fixed income to be a yield only game and one that will not provide significant capital appreciation. For this reason, shorter duration assets with a mix of credit quality is the best path forward.

Commodities

Commodities have struggled given the sluggish recovery of emerging market industrial consumption. That demand as it stands today is tepid at best. Oil will likely rebound but that rise will be capped by sluggish global GDP.

Gold is a hedge against volatility as well as inflation, and we believe will be in demand as an investable asset. We continue to maintain a price target of $1900 on gold over the course of the next 2 years. Remember that this asset is a way to hedge against global uncertainty which I expect to be present on a permanent basis.

(Read More: 'New Normal' May Be Nearing End: Pimco's El-Erian)

Cash and Money Market

Rates will stay where they are now which is essentially zero. The only reason to hold cash is if there is a tactical adjustment to be made that requires liquid assets. As an investment, the return is a net negative against inflation. However, again note that cash in a portfolio strategy may make sense if a transition is in process from a portfolio management standpoint.

Other Issues

  • Fed policy
  • European sovereign debt yields
  • Unemployment
  • Housing prices
  • US budget negotiations

It's going to be quite a year and another fun filled ride no doubt. The first challenge of the year? Debt ceiling posturing. Expect our beloved politicians to inadvertendly do all they can to crush investor sentiment. And expect volatility based on that impacted sentiment.

Editor's Note: Mr. Yoskikami will be a guest on CNBC's "Closing Bell" today, Thursday January 17 at 4pm/et.

(Previous Post: Yoshikami: Trading in an Insane Market )

Michael Yoshikami, Ph.D., CFP, is CEO, Founder and Chairman of the DWM Investment Committee at Destination Wealth Management. Michael is a CNBC Contributor and appears regularly on the network. DWM is a San Francisco Bay Area-based independent money management firm that provides fee-based wealth management services to institutions and individuals around the world. Michael was named by Barron's as one of the Top 100 Independent Financial Advisors for 2009, 2010 and 2011.

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