WHAT A DIFFERENCE A YEAR MAKES

While it was only 12 short months ago, the memory of September 2009 has started to fade for many investors.

Proclamations abound that the recession has likely ended.  Direct market intervention by the government, combined with fiscal and monetary stimulus, has proven mostly successful.  Financial markets have rallied off early-year lows. However, the strength of the recent recovery should not be taken for granted. Concerns linger related to housing, employment, and wage growth which pose headwinds for any sustainable recovery.

Stocks extend gains

Domestic stocks rallied big time!  From the March 9th bottom the Dow Jones Industrial Average has risen 52%, the S&P 500 has gained 59% and the NASDAQ up 67%.  Foreign stocks have outpaced the US markets and the MSCI EAFE Index (EFA) is up 75% and the MSCI Emerging Markets Index (EEM) up nearly 95%!  All I can say is DAMN! 

I’d love to tell you that we captured all of those gains.  But seriously, who in their right mind was going to be “all-in” on the very day that we thought the financial markets and our economy as we know it was going to implode!?  Not me.  I don’t have that kind of cajones!  But by April, when the market uptrend was confiirmed, we did get long and used some of the more aggressive leveraged ETFs to capture the bulk of those returns and get clients back to pre-crash levels and higher.  We also did great with some stock picks that doubled our money during that same time!

What now?

Since we have certainly come a long-way in a very short time – 6 months!   We need to learn from the past and make sure that we don’t turn into pigs and get slaughtered on the next leg down in the market.  In my opinion, these great returns our not ours to keep, we are just “renting” these results – more on this below.  In the meantime, I still believe that we have more upside ahead of us for the following reasons:

1. The central bank of every country has been on a currency printing spree.
2. The sheer size of the bailouts from China, Japan, USA, Euro-central, et al. will all but assure economic stimulus and eventually high levels of inflation.
3. Governments are running huge fiscal deficits and are selling debt to finance this binge.
4. Historically it has taken 18-24 months for this level of stimulus to take hold, so we are in the “golden period” of economic growth and recovery.
5. There’s a “ton” of money sitting behind bank vault doors with the more than $350 Billion in TARP funds that has been doled out to administration friendly banks.
6. There’s an even larger amount of cash on the sidelines – $4 Trillion according to Bloomberg.

 There’s no doubt that the economy is benefiting from external support.   On the plus side – The downturn has likely run its course, the economy and financial system have improved drastically, the rebuilding of inventories by companies should provide a boost through year-end.  But it is likely that the recovery phase will be choppy.  Unemployment continues to be a concern with the unemployment rate approaching 10%.

 I mentioned earlier that if you have gains and your accounts are looking better, don’t get cocky and complacent.  You are only “renting” those gains.  You only “own” them when you take action to protect them in the event the market takes a turn for the worse.  You need to “own your gains homie”.  Talk to me to learn what I mean by this.

 Finally, after 19 years in the business, I can tell you this much.  No matter what kind of investment you make – real estate, stocks, business ventures, loans, etc. – in the end, all investment roads lead to income.  Simply put, you make an investment with the hopes that it can turn into an income stream to help you maintain a lifestyle.  So think about how you will convert your investments into a steady, reliable income stream.  This is another conversation we should have and soon.