Permanent Value

President’s Message

Bruce Doole
January 10th, 2012

LAST YEARS’S FORECASTS

 

Lone Ranger –

10 Wall Street equity strategists forecasted where the S&P 500 would finish 2011.  9 of the 10 prognosticators predicted the S&P 500 would end the year at 1325 or higher (note that the index ended 2010 at 1258).  Douglas Cliggott of Credit Suisse was the lone dissenter from the majority belief, forecasting a 1250 year-end value for the S&P 500.  The stock index finished 2011 at 1258.  (The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market.) (source: 12/20/10 issue of Barron’s).  

 

Big Surprise –

13 Wall Street bond market forecasters predicted on 12/20/10 where the yield of the 10-year Treasury note would be on 12/31/11.  12 of the 13 strategists believed the yield, which was 3.29% as of 12/31/10, would be at least 3.50% as of 12/31/11.  The actual 12/31/11 yield was 1.88% (source: Barron’s). 

 

Humble Pie –

Bill Gross, portfolio manager of the world’s largest bond fund, said on 2/15/11 that “inflation will go up and bond prices go down.”  As of 2/28/11, Gross had sold all of his fund’s holdings in US Treasury debt in anticipation of rising interest rates.  The yield on the 10-year Treasury note was 3.42% on 2/28/11.  The yield on the 10-year Treasury note was 1.88% on 12/31/11.  The yield on the 30-year Treasury note was 4.42% at the start of last year and 2.89% at the end of 2011.  (source:  Financial Times). 

 

Never is a Long Time –

Treasury Secretary Tim Geithner was asked on 2/07/10 whether the USA could ever lose its top credit rating.  Geithner responded “that will never happen to this country.”  S&P downgraded the United States from AAA to AA+ on August 5th , 2011.  The USA had been AAA-rated for 70 years (source:  ABC News).    

So what impact does this have on our investments you might ask?   Since we invest in US Treasury bonds and certain segments of the S&P 500 from time to time, we thought you might be interested in how the “expert’s” forecasts turned out.   Funds around the world continue to buy US debt (source: Wall Street Journal) and overall the stocks ended up about where they began.   We have made ETFs the core of your portfolio so we can have the flexibility to adapt to what is happening in the economy and the world markets based on what you need, not what the experts are predicting.    We also continue to execute our Advance and Protect strategy for you so that we focus on protection and our disciplined sell strategy rather than just buy and hold and hope for the best.   I heard from an investment advisor that “the market will do the opposite of what the majority of people think it will do at any one time,” and that’s what we have to be prepared for today.

 

YES, IT’S AN ELECTION YEAR….

As you may know by now, we are in a Presidential election cycle and voters are going to be asking themselves “Am I better off economically than I was four years ago?”  While there are many factors and issues that go into voter preferences, this is the major determinant in how Americans will vote in 2012.   During the last cycle, it looked like the economy was slipping but there was no incumbent running for reelection.  Towards October and November of 2008 it dived into a full power slide which in turn may have impacted the election significantly.  This time, employment and growth figures seem to be picking up momentum so we will see where that leads us.

We wish you and your families all a very Happy New Year and look forward to seeing and talking to you as we review your 2012 budgets and plan ahead for the year.