Morn'in Coffee, (probably not enough)
As noted in David's January commentary, and expected; there are more than enough forecasts for the 2012 markets. Before I go any further in this note; I will mention that one filter one may attempt to use for any and all verbal or written commentaries about investment market directions; is that there is and will remain a clash of equity and bond thinkers. Some are hard core to one side or the other; and both sides may profit based upon their skills, but there remain those who don't appear to choose to ever cross the road to the other side. Although many of these folks are well educated; and should have a complete understanding of both the equity and bond sectors; I attempt to find and/or filter a bias of their mind set to smooth their comments about why one should travel a particular investment sector for profit.
I note a recent, and likely a fairly common statement that the "market (equity) has no place to go, but up. Really? Says who? I wonder what these folks were writing between June of 2007 and October of 2008. 'Course, Morgan Stanley noted in the early part of 2010 that the 10 year Treasury would move to about 5.5%, if my recall is correct. Equities going up, bond prices going down. Hells bells, take your best guess, eh?
The Contrarian method has been noted over and over; being too many folks leaning to one side or the other. A coin toss may find one or the other side is correct. One can not dismiss that the big money will indeed move into what they perceive as an oversold area; if only to make a fast buck. Unfortunately, most of we individual investors need a bit longer time frame, vs one day; with which to attempt to position our portfolio for our own risk/reward factors.
What I attempt to understand may not be worth much in a short time frame (less than 6 months); but I use what time is available to find whether I may see any investment area being affected by "something". This lends more to what; at least for me, I may name as a "liberal arts" investor; trying to view various and sometimes unrelated areas in a broad spectrum, but may have the potential for cause and affect related to investments. I am comfortable with this method; although it is obvious that too much data from varying sources may cloud any given issue; but this is part of a most crucial circumstance of investing and this is doing one's best to understand who you are and how one reacts to, and takes actions from such information.
While looking around the broad spectrum of events and data..... I will note a few areas currently in view at this house.
---Employment: While it is easy to focus on those unemployed; one must also consider those still employed, eh? If 15% are unemployed and/or have stopped looking for work; do the remaining 85% have the ability or desire to continue to be consumers on a scale of past decades? How many employed at full time, minimum wage jobs will spend monies on other than the essentials of life. Full time, 2,080 hours/year at $7.25/hour is worth about $15,000 gross income per year.
---Unemployment: Reports indicate that some job areas are not being filled; as the skill set needed for some jobs, can not be readily matched. This is an ongoing social/educational/hedonistic problem and will not be fixed any time soon. Although always present in our society, there are many skilled folks who have "worked" outside of the normal workforce. I will presume this group has expanded and will continue to expand. I am not relating this to the drug trade or related; but those who do the side jobs and/or barter work in given communities. These individuals will generate and spend income into their communities, but will not be counted on tax rolls or other official data bases.
---Boomers: The massive flows of monies into investments during the past 30 years is no longer in place from this group. How well they have prepared themselves for retirement will have an impact on cash flows from investments; which will impact investors going forward. This group and their spending habits going forward will also impact our society in general; let alone the investment world in this country.
---Technology: While I read headline stories about many millions of dollars of investment into the auto industry in MI and elsewhere; the major of the monies will go towards technology and benefit only those involved with the technology. Very few "blue collar" jobs will be created; as in years past.
---Politics: U.S. politics in particular will likely remain in the cranial/rectal mode; with the exception of a most interesting period after the November, 2012 elections when the "lame duck" session of congress will be in place. I consider this period to also be a most dangerous legislative period. We will see, eh?
---War: Call them as you see them. Military intervention anywhere, in my opinion is making war. These wars will continue to draw upon monies of this country. The one bright spot, if one chooses to name it so; is that weapons exports are still a very large export of the U.S. You already know the list of hot spots that continue globally. What path is taken by this country; will impact some investment sectors, dependent upon the where and what.
---Asia: Too much to write about with this area; but China will likely continue to be picked upon for their currency policies from some in D.C. China may indeed manipulate in many areas. However, the finger pointing from some in this country will be nothing short of a deflection of fixing problems here. The big questions for those who choose to contact their faithful one's in D.C. are: Does the U.S. manipulate any internal or external monetary policies, and what would be the affect of prices upon one's budget....if China's currency were to become more valuable against the U.S. dollar. Let your D.C. person know that you expect truthful answers.
---Debt: Sure enough to go around for all, eh? Will all of the debt lead to more deleveraging by governments, financial institutions and consumers? I don't have that answer, but the question is worthy of observation going forward. Recent reports indicate that Euro banks who recently borrowed cheap money from the EuroCentralBank were expected to purchase some bonds issued by other EuroZone countries. Apparently, this has not yet happened. Their QE plan is on hold, at this time.
---Deleveraging: Consumer spending in this country was reportedly fairly strong in the holiday season. What will take place after the credit card bills arrive and due for payment will show its true face in the next quarter.
---Inflation: Inflation is still here in some areas. Social Security will place an extra 3.6% into payments beginning this month; and this is based upon the government CPI.
Well, not much noted to any extent; but my clock on the wall, states this is all, for now. If this house is lucky enough to be in the right places, at the right time with at least 50% of our portfolio, we will at least break even for 2012. The U.S. markets may be the best bet again this year. Watching the $Euro to find whether it continues downward; and its reflection upon our markets here. Mr. Bernanke likely will not allow or try to not allow much in the way of interest rate increases here; until he is fully satisfied that normal market forces, including the consumer have taken hold into a very positive GDP related mode.
What is Contrarian today? I sure don't know that this "feel" has as much meaning as it may have had 5 years ago; not unlike a steep yield curve may point to a going ecomomy. The 30 year bond bull market is reportedly upon it's death bed.....I will watch and wait. Perhaps when the bond traders and others are finished with helping Europe gets its act in order; that they will arrive in this country to help those in D.C. discover how much fun may be had with a 7% yield on our 10 year Treasury.
Surely missed something I thought I might write, but this is it.
Take care,
Catch
Comments
Baby boomers are retiring and quitting work force but they still have to spend especially increasingly on medial services and those healthy among them still travel spending some of their money. In addition, while the nature eventually reclaims the old, the younger generation is coming along. Household formation will take care of excess hosing and more. This might not help 2012 but I am optimistic about the future of US.
"The only thing we have to fear is the fear itself." - FDR Inauguration Speech
http://historymatters.gmu.edu/d/5057/