The Year that Was and the Year to Come

Joshua Schroeder

By Joshua Schroeder
2011 was a year marked by extreme volatility driven by the Japanese earthquake and tsunami, the Arab spring and most of all by developed world policy makers’ unwillingness to move past politically motivated temporary policy fixes and put the economy back on solid footing.  In Europe we witnessed “wrong way” Trichet raise interest rates in the face of rising credit spreads and an oncoming recession and policy maker’s reluctance to employ the ECB as a backstop for sovereign debt.

And it wasn´t much better on this side of the pond where the “not so” Super Committee failed to reach agreement on a series of policies aimed at supporting growth in the short term and addressing national debt over the medium to long term.  As a result the S&P had a 24% range during the year and we saw periods where intraday movements of 3 to 4% were common.  Amusingly, in the end we ended nearly flat on the S&P 500 at 1,257.60, up 5.53% on the Dow Jones Industrial Average at 12,217.56 and down 1.8% at 2,605.15 on the tech heavy Nasdaq Composite.

As for 2012 predictions, I think it will be a tale of two halves, as I think the first half of 2012 will bring more political bickering, destructive class warfare and policy half-measures due to the election year in the US and the reluctance of Germany to accept anything other than antigrowth austerity out of the periphery.  However, I do believe that time is short for policymakers and that substantive fixes will be made in the second half of 2012 or in early 2013.  Given that the markets are a discounting mechanism, 2012 should be better than 2011 and we should expect to see multiple expansion leading us higher on the back of improving corporate earnings of around $105.  The US economy will hopefully continue to outperform despite the policy cloud on better than expected job growth, increasing exports and continued consumer strength.

As for my portfolio in 2012, I will continue with my cash flow driven, higher yielding “quality core” assets surrounded by “cheap” growth opportunities.  In early 2012 I will allocate a majority of new capital to core assets while looking to opportunistically add more growth positions on big down days or as the policy headwinds ease later in the year.  Thanks for reading and best of luck in 2012!

For more on 2011, also see Andrew Nyquist’s Just What the Heck Happened in 2011?

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Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of his employer or any other person or entity.

No positions in any of the securities mentioned at time of publication.

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