As I write this about one week in advance of printing for the last issue of the Anna Maria Island Sun in 2011, it may be worthwhile to put this year of emotionally trying times in some historical perspective. Then consider some things to wish for in 2012 that might help cheer us up with some improved financial markets.
The year isn't in the books yet, but barring any significant action in the last week or so of trading, it appears that the results for the U.S. stock market are going to be right around the zero-line, plus or minus a bit. It's a bit ironic that a year in which many records for volatility were set that the end result is so lackluster. The chart below shows the number of times the stock market's result has fallen into different ranges.
The value of the chart is to show that the long-term returns of stocks and other asset classes are achieved by calendar year results that are usually not within the definition of normal, with normal being defined as a return between 5 and 15 percent. In fact, the long-term average return for equities of about 10 percent is achieved with results in the 5 to 10 percent range only 21 percent of the time in the last 61 years ending with 2010! Now we don't know where 2011 will finish yet, but it appears it will be another case where the result was outside of normal.
With our memory of 2011 not likely to be favorable at least related to our investments, the chart helps remind us that markets have never been, nor are they likely to ever be, predictable. But, nonetheless, positive investment results are still achievable over time for those who remain disciplined and employ time tested methods.
What should we put on our wish list for 2012? With my previous acknowledgement of unpredictability, there is no certainty about any one trigger that may finally result in some great years ahead, but we can still wish.
More certainty in regulation
Corporations are sitting on huge stockpiles of cash, some of which they are using to increase dividend payments and buy back stock. They seem to have been a bit slow to hire new workers, however, and I believe their hesitancy stems from a low level of visibility as to what tax policy and other regulations, such as the Obama Healthcare Act, might do to their cost structure.
Without getting into political opinions, I would hope that if Obama is re-elected in 2012 that he would work to gain more input from the business leaders he needs to create the new jobs necessary to get the economy growing at a higher rate. A cabinet filled with academics, who were never responsible for signing a payroll check, doesn't seem to be the best idea, which I think he has realized recently.
A plan for Europe
Whether the plan is for some level of controlled default or for a huge rescue effort, some level of certainty as to the course of action which will be pursued will provide increased confidence to investors who can then quantify the risks and be willing to buy stocks and bonds with a longer term view of the future.
Subjectively (and I mean very subjectively), I can make the case it doesn't matter much for the world's financial markets which path in chosen. The markets have had the chance over the last year to fully consider and price in the consequences of a default, a break-up of the Euro currency block, a rescue effort, all or a combination of which seem equally likely at the moment. No matter which path is chosen, there may be a huge relief factor just knowing what will be attempted.
A real attempt at U.S. fiscal reform
At some point in the future, there will be no choice but to act to reduce spending and increase revenues in a combined effort to control the annual deficit and growing national debt. But the sooner our politicians, both Democrat and Republican, can stop being obstinate and re-discover the concept of negotiated compromise to work toward the necessary goals, the better off we'll be and the more confident investors and businesses will be in committing capital. It is this investment which provides the grease that allows the wheels of commerce to move more freely and to grow tax revenue based on volume rather than raising tax rates.
Those are my top three wishes for 2012. I hope you and yours have a Happy New Year, and wish you the best for a successful and healthy 2012.
Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit www.breitercapital.com.