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Spring Mountain Capital Says Doomsday Scenario for Europe Is Unlikely

Wednesday, January 18, 2012
Opalesque Industry Update - Spring Mountain Capital Says Doomsday Scenario for Europe Is Unlikely, But Highlights Risk of Deflationary Spiral; Warns Against Underestimating Fundamental Strength of U.S. Economy; and Is Positive on Emerging Markets

Recommends Holding 15% to 20% Cash Going into the Year Despite Positiveness – As Better Buying Opportunities Likely to Emerge During a Volatile 2012

Spring Mountain Capital, LP (“SMC”), an investment management firm that focuses on alternative asset investing, today released its 2012 Investment Outlook Report highlighting the major issues that it believes will influence the markets in 2012, and an analysis of scenarios, positive and negative, related to the influencing factors.

In particular, the report focuses on the outlook for the European Crisis and U.S. Economy in 2012, outlines some of the more “unconventional” market views, and provides the firm’s overall recommendations for investors.

Summary of Key Market Views from the Report

• Outlook on the European Crisis
 A “doomsday scenario” of a cataclysmic bank collapse is unlikely to occur
 Policy-makers have learned the lessons of the Lehman failure and will aggressively provide liquidity to the financial system
 Europe will adopt one of two plans:

  •  The “Stagflation Plan” (combination of “official inflation”, austerity, modest deleveraging and modest budgetary reforms), or
  •  The “Deflation Plan” (combination of punishing austerity, painful budgetary cuts and substantial deleveraging)
 Market risks:
  •  Interim external shocks such as a spike in oil prices
  •  European Central Bank loses control of rates
  •  A stagflation plan may take too long to bring tangible benefits even though it is more rational from an economic perspective
• Outlook on the U.S. Economy
 Fundamental strengths are underestimated and U.S. economic growth is expected to be positive; however, it is expected to be below trend in 2012 with real GDP growth of 1.5% to 2.5%
 Political gridlock has stifled recovery and will remain a key market influencing factor throughout the year
 Low interest rates may worsen the debt crisis, force higher personal savings rates and decrease consumer spending

Overall, Spring Mountain Capital is positive on the U.S. economy although it expects continued market volatility during the year. This, however, will provide good entry points for risk assets and the firm recommends investors begin 2012 with cash balances of 15% to 20% so that they are poised for these opportunities.

“In general, despite the potential deflationary bust in Europe, we are positive on U.S. equity and credit markets with a base case of 7% to 8% for 2012 S&P 500 returns, and a base case of 10% returns for the 2012 U.S. high-yield market. We are also positive on emerging market equities in markets such as China, Thailand and Singapore, as we expect Europe to choose a stagflation plan and valuations are currently favorable,” commented Launny Steffens, Founder of Spring Mountain Capital and Co-Managing Member of its general partner.

On the European crisis front, Spring Mountain Capital recommends staying away from European banks and expects European high-yield and bank debt to perform poorly. Consequently, it believes there is an opportunity for investors to short European high-yield and bank debt, and to focus on buying U.S. high-yield and bank debt instead. It also believes European-focused private equity funds will provide an opportunity for investors in 2012 as market sectors consolidate.

A copy of the 2012 Investment Outlook Report is currently available on Spring Mountain Capital’s website:

(press release)

Founded in 2001 and located in New York, New York, Spring Mountain Capital, LP (“SMC”) is a private investment management firm that focuses on alternative asset investing and offers investors a wide range of strategies designed to produce attractive risk adjusted returns. SMC has a dynamic and opportunistic mindset with a client oriented focus that drives it toward providing investors with intelligent and sophisticated investment opportunities. Based on its extensive network of personal and professional relationships, SMC is constantly searching for insightful investments from a wide range of sources.


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