Investment Markets Overview – w/e 6 January 2012

Welcome back from what I hope was a peaceful and enjoyable festive season and may I wish all readers a happy, healthy and prosperous 2012.

2011 was a tough year for most investors, despite the consensus predictions from leading strategists and economists of double digit returns, as can be seen from the following returns of the major stock indices.

In almost every world stock index the bear market regained its dominance last year, albeit that the most watched index in the world, the Dow Jones Industrial Average, managed to eke out a 5% gain, belying the fact that by year end fewer and fewer of its underlying constituents were reaching new highs, an unhealthy sign.

Many emerging markets faired even worse, as did many commodities, thanks to over leveraged investors raising cash to offset losses elsewhere. Copper and Silver, good barometers of economic growth, saw their first quarter gains evaporate, lurching lower by 34% and 42% respectively from their year highs to lows. $Gold managed a 10% gain, making a successive 11th winning year, but even here there was divergent underperformance from the mining stocks, another unhealthy picture. The Oil price, as evidenced by West Texas Light, also gained 10% but with increased volatility, the 2011 story for most asset classes.

Property at least eased its rate of decent  but with inventory levels at historic highs in the West and “bubble scenarios” within pockets of the East, particularly in Hong Kong and mainland China, this remains an asset class likely to disappoint from an investment stand point for quite a while yet.

Ironically, in a year that was marked by increased concerns over sovereign debt, bonds were the star performers. US government debt produced the best return of any financial asset, for the first time since 1997 and despite the mid year wobbles over the “debt ceiling debate.” UK Gilts meanwhile, managed double digit returns regardless of whether they were index-linked, benefiting from an expectation of higher inflation, or of the plain vanilla variety, offering multi decade low yields. Rather perverse but confirming that the perception of safe haven remains alive in some quarters. As all eyes remain on the “Euro-Zone problem,” The US quietly reached its revised debt ceiling of $15.194 Trillion, bringing it into the select group of nations whose debt/GDP ratio exceeds 100%!

The first trading week of 2012 has witnessed positive returns for most stock indices and the commodities complex, including the precious metals. Sovereign debt has in the main sold off, as the so called “risk trade” has rolled on from Q411. Perhaps investors have been reassured by the year end predictions made once again by those high profile “guru’s.” According to “USA Today” strategists predict a glowing 2012, with 10.5% gains forecast for stocks, almost exactly the gains forecast on the front page of the 30th December 2010 edition of “Barron’s” for 2011.

 “Consensus is what everyone agrees to collectively, but no one believes individually.” 

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