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2011 leaves investors USD3 trillion poorer

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December’s good news was that 13 of the 46 markets posted gains, according to data released by S&P Indices. The bad news was that only two made gains for the year, and just barely – Indonesia was up 1.14%, and the Philippines was up 0.21%. 

For 2011, S&P Global BMI was down 10.07%, as 21 markets lost at least a fifth of their market value. The devastation was even worse when you excluded the minor US 0.82% decline, which brought the Global Ex-US to a 16.64% loss for the year.  Emerging markets lost 22.92%, which was much worse than the Developed markets, which lost 8.19% (off 14.88% excluding the US). 

European debt fears dominated most of the year for Developed markets, as growth rates and recession dominated Emerging markets.  Decoupling moved to the US-European relationship from the US-Emerging relationship, as the US dollar gained and the US Treasury became the home of safety. 

For the month of December, Emerging markets declined 1.42%. Hungary posted a 10.60% decline, the worst of any market. Malaysia did the best of any market, rebounding 4.40% to end the year off 1.14%.  Developed markets were off 0.33%, with the US gaining 0.64% for the month – ex the US Developed markets were off 1.32%.  The US now accounts for 45.36% of the BMI global equity market, up from 42.04% at year-end 2010 and 41.12% at year-end 2009.

‘When I was a young man’ the first week of the year used to be when traders returned and positions were taken, with the help of strong cash infusions.  But now I’m ‘so much older’, and things have changed – at least in the last two years.  Tape watchers have concerns about inflows, and few expect significant inflows from individuals, whether it is for their own account, or self-direct retirement plans. Profession money managers have also had a difficult time picking winners (be it stocks or countries), and while ‘you need to be in it to win it’ continues, safety concerns continue to rank high on investment policy.  The bottom line is the market is expected to continue going nowhere fast, with short-term volatility, and low confidence in projections. 
 
It was a book-end year, with the first quarter up 5.42% and the fourth quarter adding 11.15%, making it the best fourth quarter since the 14.54% gain in Q4 1999 (when all we cared about was whether the ATM would work because of Y2K – the 2000 Bear market started less than 3 months later).  In between the book-ends (with ‘old friends’), however, were major concerns over debt (European and the US), recession and political stability. While Q2 underwent a mild 0.39% decline (thanks to a 2.85% April gain), Q3 sustained a devastating 14.33% decline. 

For the year, the S&P 500 is up 2.11% including dividends (and down 0.0028% based on stock alone).  There were winners in 2011, as 233 issues gained, although 263 declined. 

Financials (off 18.41%) and Materials (down 11.64%) were hurt the most, as the boring, slow-moving Utilities (up 14.83%) performed the best, aided by a more conservative investor, as well as income (dividend) seekers.  Going forward, 2012 estimates are mixed, with top-down estimates generally showing more concern than the Bullish bottom-up estimates. One item does appear to be common to both projections – 2012 will continue to be filled with domestic and international turmoil. 

Debt issues are expected to become critical (with the potential for another recession due to government pullbacks) and political issues are expected to grow (in the US the presidential election grows closer, and globally, mid-eastern countries face new governing bodies as European countries try to balance income and expenses). January’s will bring earnings (Q4,’11 is expected to be the third best on record – Q3,’11 holds the record, and Q2,’11 holds second place), dividends increases (expected to start in mid-late January, with February historically having the most – after year-end, annual going out, and shareholder meeting coming up – no better time to increase), the return of Congress – ready, willing, and able to continue the tax and spend debates (the 2-month extension puts an average USD19.32 in weekly paycheques – take what you get, at least the direction is right), with the arrival of new cash into the market scheduled, but not expected. And a good time was, and will be, had by all.
 
Interest rates decreased in December, as debt and policy issues in the US and Europe played the central role.  The 10-year Treasury dropped 21 basis points (bps) to close at 1.88% (from November’s 2.09%, year-end 2010’s close of 3.29% and year-end 2009 close of 3.84%). The 30-year Treasury decreased to 2.90% (3.07%, 4.34%, 4.63%).  The Euro close at 1.2944 (1.3439, 1.3363, 1.4313), the Pound closed at 1.5526 (1.5700, 1.5593, 1.64313) and the Yen closed at 0.01300 (0.01332, 0.01232, 0.01108 [76.95 vs. 77.31 vs. 81.15 vs. 90.29, reverse reference, which is usually used]). 

Commodity prices were mostly down. Natural gas closed the month down 11.4%, making it down 25.3% for the 12-month period. Agriculture increased 2.8% in December and was off 17.7% for the 12-month period. Gold closed at USD1,568.00 (USD1,751.30, USD1,422.00, USD1,180.10). Oil closed at USD98.86 (US D100.58, USD91.40, USD78.36). 

US pump prices deceased to end the month at USD3.307 from last month’s USD3.258 (USD3.106 as of year-end 2010, USD2.662 as of year-end 2009 and USD1.670 as of year-end 2008).          

 

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