Beginning of a new year
It really is hard to believe that yet another year has fallen by the wayside already. 2011 will be a year that most of us in the investing world remember as being leaderless, choppy, frustrating and sometimes downright unbearable. The markets gave no good return if investors simply played the buy and hold the major indexes strategy. International investors fared far worse than domestic investors, and for the first time in a couple of years those who put money into a general commodity fund on Jan. 1, 2011, lost money.
Those who invested in the bond markets did a lot better. The iShares Barclays 7-10 year Treasury bond fund (symbol IEF) saw its share price increase 12.52 percent not including its dividend. The Vanguard Total Bond Fund (symbol BND) posted a decent return on a price basis of 4.07 percent, also not including its dividend.
As mentioned above, international investors participated in a solid down year. The Vanguard MSCI Emerging Markets ETF (symbol VWO) lost 20.64 percent. A major national disaster in Japan caused both long- and short-term effects. The residual effect from a pure investing standpoint is no growth, large debt, and companies trying to recover from the tsunami. Although Japanese companies are in the VWO ETF the larger investments are related to China. Taking a look at the iShares FTSE/Xinhua China 25 Index is posted a loss right at 19 percent last year.
Of course the larger issues were in Europe. The iShares S&P Europe 350 Index Fund (IEV) was only down 13 percent. Although this number is not below the average international fund, that is due in large part to the holdings in the fund. Most are large companies, energy and consumer staple related. When you look into the smaller companies located in the Europe area you see quickly that the damage was much worse. The SPDR S&P Emerging Europe ETF (GUR) lost 27.22 percent of its value. This clearly shows that companies that don't have a global market suffered on the heels of a declining economic picture in Europe. Unless the individual countries can continue to formulate a long-term debt reduction package, there will be the continued headwinds.
So that is what happened in 2011. Now what do we anticipate happening in 2012? This may very well be one of the most critical years to face not only our country but the investing world as well. It is nearly impossible to keep ones political beliefs out of any type of conversation regarding the direction of the markets. Bias and emotion are never good indicators and should be avoided at all costs. That being said, we see a lot of headwinds facing the U.S. economy. The largest appears to be the federal government. Choosing one particular branch or party causing uncertainty and doubt and we have discussed each one last year. There are three political events that will drive at least a portion of the investing world. First will be the battles in Congress over tax extensions, budgets and debt. The second will be a Supreme Court decision on the health care law. And, obviously, the third will be the election of not only the president but also any large shake-up in both the House and Senate.
The markets also start to prepare themselves for uncertainty well in advance of the actual event. It happens quietly and without much fanfare. It catches those asleep off guard but is no surprise to those who are prepared and have a set methodology to investing not only in the stock and bond markets but also in the agriculture markets.
We will continue to apply Point and Figure technical analysis to each market and hopefully not let you be caught off guard.
(Any specific investment mentioned was for illustrative or educational purposes. Please consult your investment advisor for more specifics.)