These are my periodic letters and special reports for clients and the interested. My general theme are to identify risks and search for opportunities in the biggest trends.
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Happy New Year! The new year will be a lot like an old year. Not 2012, but quite likely a lot like 2011, marked by increasing volatility and possibly a correction, before we begin a new leg higher in the markets. I reserve the right to be off by a year, but given a host of reasons covered in my year opening article for MarketWatch – Prepare for Zero Real Growth in the U.S. in 2013 (please read it) – it is time to err on the side of caution again as other investors decide to get back into the markets after several years.
When I discuss volatility, many people react with disgust or disjointed irritation about what they perceive as a high level of volatility in the markets. Over the past fourteen years there has certainly been volatility, but in the past year, volatility has been very low. Most people are not aware of this.
In 2011, we saw the year begin with a low volatility uptrend, see volatility spike into a correction, then volatility diminish and support another rally. As I discussed on MarketWatch the first week of January 2012, Your Major Risk in 2012 is Missing the Upside, I believed 2012 would be a pretty good year despite common perceptions that market volatility was a major risk.
Today, now that the Mayan calendar has recycled and we have survived, let’s take another look at volatility.Read More
2012: Another Year the World Won’t End
Throughout 2011 we heard proclamations of doom and gloom from market pundits to gold traders to vote seeking politicians to assorted snake oil salesmen to the converts of ancient Mayan religion. Each has a version of a coming apocalypse, some including hyperinflation, 50% unemployment, widespread famine, world war or complete destruction of the globe due to galactic forces beyond our control. In my estimation, each is about as likely as the other to occur, that is, not very likely at all.
If you will recall, on several occasions back in 2007 and 2008, I discussed the vast financial problems that the globe faced. Today and recently, those who missed the actual financial collapse are running around telling us about a coming new bigger and badder financial destruction to come. To put this as plainly as possible, they are very late to the party.
While it is possible, if not probable, that the global economy and financial markets will operate on very uneven paths for an extended period, the big financial debacle has already occurred. Could we see another stock market drop of 30%? Absolutely. Is real estate likely to keep falling in the short term? Probably. Will governments continue to politic us into migraines and slow solutions? What else is new.
But, and this is important to observe, there are forces out there that are creating balance as you read. The slowing of developed economies is being offset by growth in developing economies. The forces of deflation and the forces of inflation are nearly balanced on aggregate (though as any shopper can tell you are uneven from item to item). The slow methodical approach of Germany and the European Union to gradually fix Europe is neutering quick clicker finger traders who are betting on financial turmoil in the hopes of making a fast get rich strike.
All in all, despite being unsure of things a year or so ago, I am quite confident that my newfound optimism is well placed.Read More