Market Update; A Good Start to 2012

Hello and happy belated New Year investors and savers:

The last quarter of 2011 provided some relief from the drubbing of about 15% in the stock market’s third quarter, as share prices rebounded about 11%-12%. That still left prices basically unchanged dating back to the early August level before the USA’s credit ratings’ downgrade.The main market-related, but non-economic story in my opinion was the off-the-charts volatility of stocks and bonds. I reported on the crazy swing in stock prices during the third quarter in my blog post of mid-November.

Our stock market here in the USA strengthened its engagement and ties to the European mess playing out on the world stage daily; let’s pray a marriage proposal isn’t imminent. In 2011, foreign bourses fared much worse than their North American counterparts. The scoreboard: USA: +2.11% on the S&P 500 Index, Canada, -11%, Latin America, -22%, European region, -15% (the best performing markets there were Ireland, -1% and the U.K., off 6%). Asia and the Pacific region pretty much followed along on the downside: Pacific region, -18% (Indonesia and the Philippines were leaders here, up 3% and 4% respectively); Japan and China down 17-20%). The fear in Asia: they export big time to Europe and the U.S. so our slowly recovering demand-based economy has hurt their pocketbooks also. Does any of this make you feel any better? What worked best, in hindsight here on U.S. soil, was to shun stocks and pile into bonds.
 
Consumer prices (inflation) headed higher in 2011; the final tally was +3.0% up sharply from +1.6% for 2010 – hurting or at least hampering domestic spending, not to mention your dollars worth less even if you spend nothing. “Invest in inflation, it’s the only thing going up", Will Rogers once said. Employment, the chief driver of happiness and consumer confidence now-a-days, remains stubborn at 13.3 million folks jobless, or 8.5% (luckily 141 million still punch in for their daily grind).
 


The major top in the stock market occurred last April 29th at Dow 12,810; and there was a strong attempt to get there last week, falling short by about 50 points. Still, the 2012 rally in stocks has certainly been positive: Dow and S&P 500 up 3.5% and 4.3% respectively. A little pullback in prices may be in store for a few percent. Our favored commodity plays, gold and silver are shining bright also; gold +11% and silver +20% year-to-date.


FREE MARKET CHART: For a handy investment table showing the market performance over 20 years courtesy of Callan Associates, Inc.,(www.callan.com).  Please click on the chart at the end of my text and print it from your web browser. I will e-mail you the file if you can't print it. If you print it in color and follow along, it provides an interesting graphic on the markets. What jumps off the page? For me, it's that the general market (SP 500) has acted sub-par over 6 years now; up just 14% from 2006-2011 shown by the olive green colored boxes. The foreign emerging stock markets take the 6 year record, up 50% shown in orange; but the foreign developed markets were dead even (grey boxes); More reward for more risks however. Look at 2008; the sentinel year of the perfect economic storm turmoil. Only bonds made money for you, while stock price declines ranged from -29% to -53%. Most stock markets then sprang back nicely in 2009, but not enough to cover the ’08 losses. Remember the math; if you lose 30% in year one, and then gain 30% in year two, you are still down 9% overall – you are not back to even*.

Lastly, bonds, here measured by the iShares Aggregate Bond Index (green boxes); even though in last place for 2006, 2009 and 2010; bonds were actually positive in all 6 years; and resulted in a gain of +43% during that time. They were in first place in '08 and '11. This shows us the value of not losing principal in bad years. The only stock basket that could feebly attempt to approach the bonds was the Russell 2000 Index (smaller US based stocks) at +20% and the growth stocks contained in the SP 500 Index, which were up +25% during the 6-year stretch. I would bet that the top three categories will change again this year...any takers?

What this chart should teach us is that markets are very much a guess year to year on the performance scale. Also, there are opportunities overseas. Find a ‘system’ that works for you, diversify across a few categories of assets (stocks, bonds, metals, agriculture), and then watch and react using your charts (explained last blog post on Dec-5th). If you can limit your losses or drawdown in the really bad years, you will generally do better than most investors and suffer less stress to boot.
Between blog posts this year, you will be receiving savings and investment ideas that could suit your situation well. Contact me if you wish to opt out of these.

Give a call or reply to this blog post with any comments or questions.
"Thinking outside the traditional box"  
~Barry L. Unterbrink, CRPC (954) 719-1151

* Performance math; year 1, $100 - 30% = $70; year 2, $70 + 30% = $91