The 4th quarter of 2011 proved to be a relief for the US markets after double-digit losses occurred in the 3rd quarter. However, the European debt crisis continued to subdue most of the appreciation of stock prices of companies located outside of the United States. Overall, 2011 was a difficult year to be a globally diversified investor.
As we head into Thanksgiving, US Economic reports have been favorable. Over 70% of the S&P 500 (an index that tracks 500 US companies) beat expectations. Unemployment reports have been marginally better, yet Europe continues to cast dark clouds above the financial markets.
Playing “Chicken”
As the debt ceiling debate roars on and the markets continue to trade violently from head line to head line, I can’t remember another time that I have noticed such a blatant display of “politics as usual” from our government officials. As renowned money manager John Thomas points out, “The debt ceiling has never been used this way. They are taking a normal housekeeping matter and turning it into a political weapon.” A high stakes game of “chicken” in an attempt to gain a political edge during the 2012 election with the United States AAA rating at risk.
The old adage of selling off your stocks in May and going away until Halloween is appearing to be a pretty good investment strategy so far in 2011. The first 4 months of equity gains are beginning to be challenged as volatility begins to increase. The markets are getting nervous about the global debt problems experienced world wide and next month the US economy will finally attempt to walk on its own with out the monetary crutches of the Federal Reserve as the latest round of $600 billion of Quantitative Easing II (QEII) ends.
Climbing the Wall of Worry
It’s really quite remarkable how quickly the stock market shrugged off the terrible tragedy in Japan, the unrest in the Middle East and North Africa, the rising price of oil and other commodities, and the continuing sovereign debt problems in Europe. In the month of March the stock market only took about a week off it’s six month advance by dipping briefly into negative returns for 2011 and then gaining it all back in a week.
2010 is now history and it caps a wild three-year ride in the financial markets. We ended 2007 near all-time record highs in the U.S. stock market, but then the wheels fell off. In 2008, markets fell dramatically and the world economy nearly imploded. In 2009, we realized that the world was not going to end and markets began to recover. In 2010, matters started to stabilize and return to some level of “normalcy.”
“The Fed is driving the S&P, which is overpriced— the Standard & Poor's 500— a broad measure of the U.S. market, is driving it from already substantially overpriced into what I would call dangerously overpriced.” -Jeremy Grantham, Legendary investor and Chief Investment Strategist for the esteemed Boston money management firm, GMO LLC in a rare...
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The 4th quarter of 2011 proved to be a relief for the US markets after double-digit losses occurred in the 3rd quarter. However, the European debt crisis continued to subdue most of the appreciation of stock prices of companies located outside of the United States. Overall, 2011 was a difficult year to be a globally diversified investor.
As we head into Thanksgiving, US Economic reports have been favorable. Over 70% of the S&P 500 (an index that tracks 500 US companies) beat expectations. Unemployment reports have been marginally better, yet Europe continues to cast dark clouds above the financial markets.
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