The economy is recovering and Americans are feeling better after bouncing back from a recession.  Advancements in technology are changing the way we live and there is hope that the new century will bring even more progress. But anxiety lurks beneath the optimism.  Will these new technologies change the world beyond recognition?  Has the environment been dangerously damaged? In the business world the public wavers about whether to admire or hate a tycoon who’s somehow gained control of one of the most important economic engines of the century.

Does this sound familiar?  Well the year is 1899 and the business titan is John D Rockefeller.  The concerns have to do with the industrial revolution not the Internet.   How the public felt  in 1899 is not much different than how people felt in 1999 or even today.   One thing that is certain is that our lives are better today than ever before in history in terms of longevity, technology  and information.   The markets continue to reach new highs and our economy continues to grow. 

Long before Bill Gates or Mark Zuckerberg people were worried about monopolies, the environment and economy.  Mark Twain decried America’s actions abroad in a New York Times editorial cautioning the United States not to “fasten the chains of our sovereignty” upon unwilling people.     The media had numerous stories of doom and gloom. 

The bottom line is that circumstances are different today in terms or the world condition but they are much better, not worse, than in the past.    Given the new technologies and globalization we  expect things will continue to improve.  In my opinion the best is yet to come!    People will always be worried and the media will always focus on the negative and short term.  Those who are paralyzed or distracted by the noise and fear may  miss an opportunity to build true wealth and at the very least preserve their lifestyle while those who see beyond the hype will  at least have the opportunity to profit.   To quote  Alphonse Karr, who lived from 1809 – 1890  “The more things change the more they stay the same”.  The quote, and our situation, is as true today as it was in 1890. 

As always please contact us with questions about today’s events, markets or economy or if you wish to discuss your personal goals, vision and objectives.   Our team is here for you!

 

 

 

 

Any opinions are those of  Randy CArver and not necessarily those of RJFS or Raymond James.  Anyinformation is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation.

January 3, 2012 – Stocks staged a sharp rally on the first trading day of 2012, leaving behind a year that saw tremendous volatility but essentially no change for broad U.S. market indices. Buoyed by a strong report on American manufacturing and news of economic growth in China and India, the Dow Jones Industrial Average was up 179.82 points, or 1.47%, on Tuesday, while the S&P 500 rose 19.46, or 1.55%, and the NASDAQ advanced 43.57, or 1.67%.

 The opening session’s gains were a welcome change from December, when stocks were flat and from 2011 as a whole, which took investors on a wild ride that included 69 days in which 90% of the S&P 500 stocks moved in the same direction. When the smoke had cleared, the blue-chip Dow was up 5.5% in 2011, while the S&P 500 was off a tiny 0.003% and the tech-heavy NASDAQ lost 1.8%. 

	12/30/11 Close	12/31/10 Close	Change	Gain/Loss
DJIA	12,217.56	11,577.51	+640.05	+5.53%
NASDAQ	2,605.15	2,652.87	-47.72	-1.80%
S&P 500	1,257.60	1,257.64	-0.04	-0.003%

 

Looking back at 2011, investors were generally optimistic as the year began, citing a record $2 trillion in cash on corporate balance sheets, record profit margins and an improving U.S. economy. Despite higher oil prices and a tragic tsunami and nuclear accident in Japan, stocks reached a three-year high in April. However, things began to unravel after that, as European leaders grappled with a steadily worsening debt crisis and political squabbling over the U.S. debt ceiling took the nation close to default and put investors in a dark mood. Matters came to a head in August when Standard & Poor’s issued a historic downgrade of the U.S. credit rating and markets gyrated wildly, with the Dow bouncing up and down by 400 points or more for four straight days. The Dow dropped 4.4% in August, its worst decline of the year, and stocks moved inconclusively throughout the balance of 2011.

The twin problems of uncertainty and volatility sent investors scurrying for safety in 2011, with U.S. debt remaining a preferred haven despite the rating downgrade. Treasury bonds had their best year since the 2008 global financial crisis, with the benchmark 10-year yield ending 2011 below 2% for the first time since at least 1977, down 1.45 percentage points for the year. Investors also preferred U.S. stocks – foreign markets were off substantially in 2011, with British shares down 5.6% for the year, German equities declining 14.7%, and Japanese stocks falling more than 17%.

Going forward, investors will be focused on U.S. job growth, including the unemployment report due this Friday, fourth-quarter earnings reports, and Europe’s ongoing debt problems. Other factors weighing heavily on the markets include the upcoming U.S. elections and uncertainties regarding taxes.

As 2012 begins, many of the factors that worried investors last year are still with us, and more volatility may lie ahead. In that context, avoiding emotional decisions is a great New Year’s resolution. I will be communicating with you about market events that may have implications for your portfolio. In the meantime, please contact me, or any of our team,  with any questions.

Sincerely,

 Randy

 Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. International investing involves additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability.

It is difficult if not impossible to forecast the outlook for the markets or economy in the near term with any degree of accuracy.  Happily we believe that what the markets or economy does in the short term should not affect how you invest.  Your investment allocation should always have cash on hand for near term needs and also an emergency reserve while being based upon your individual needs, objectives and risk tolerance. 

Having said that, we feel that the next 6 – 9 months will see continued volatility in both the equity and fixed income markets with interest rates and inflation rising slightly. We anticipate increased concern with regard to municipal bonds and the ability for some issues to pay interest and perhaps even principal.  Over the next two to four years we expect interest rates, taxes and inflation to all go up significantly.  At the same time we expect the equity markets to move up strongly.  The key as always is to focus on real risks (inflation and taxes) and not media driven or created panics.

For the period 2011 – 2015 we expect to see a situation similar to what was experienced in the early 1980’s where people felt worse off but those with investments did exceptionally well.    As higher taxes reduce income and higher inflation increases expenses many people felt their standard of living is reduced or under pressure.  At the same time the equity markets did exceptionally well – the  DOW Jones Industrial Average*   went up over 400% from August of 1982 – 1987.  Past performance does not guarantee future results but can give us some insight into what we may be able to expect.

We expect that government entitlement programs will be reduced and/or means tested.  We continue to believe that the media will focus on the negative and short term and that people may lose focus of real risks such as inflation and taxes to their net worth. With people living longer and risking expenses it will be critical to monitor and update your portfolio and your overall financial plan on a regular basis and to focus on realistic return and withdrawal expectations.  If and when inflation increases it will become more important to maintain a growth component to your well diversified portfolio.   

We believe that there will be a unique opportunity for those with foresight and vision to accumulate a lot of wealth in the next few years; however, there will also be pitfalls for those who fail to plan properly, focus on the wrong things or simply spend too much.  As we see increased complexity with regard to tax, estate and financial planning it remains important to work with an advisor who can coordinate all aspects of your plan.   It is vitally important that clients not withhold information from their advisors  just as they should not withhold information from their doctor about other medications they are  taking.  Without a clear and complete picture of your situation your advisor cannot give you’re the best recommendations for your needs and objectives. There is no cost or obligation for us to review all of your holdings and to discuss what your personal financial vision is.

We look forward to working with you to discuss your wealth management plan in the context of your overall needs, objectives and risk tolerance.  We expect that the next few years will be challenging for many but that there are also some wonderful opportunities.  We appreciate the opportunity to partner with you.