Welcome to the December 2012 Asset Management Strategies newsletter. I hope that everybody had a great holiday. Where do we start?
Before we get into the fiscal cliff debacle, let’s look at December’s market action and then the entire 2012 year. The S&P was up 1.19% for the month of December, which was basically all in one day, the last trading day of the year. Until that, the market was slightly negative for the month.
Of course the month was dominated by the fiscal cliff deadline that moved the market with every hint as to how it might play out. We were completely out of the markets for the month, which was well worth the 1% gain to avoid what could have been an ugly market selloff, had the deal not been made in the 11th hour.
For the year the market was up 13.4%, with small caps and international doing even a little bit better than that. But, as you’ll notice it was not without some drama as the market was up 10% then lost all of that back, only to rebound and sell off again after the election and then come back again at the end of the year.
We have to congratulate this market for posting a positive year in the face of some serious issues. The European debt crisis played a part but most of the sentiment was focused on our economy, our debt, and the election.
So let’s talk about the fiscal cliff, or as I like to call it the fiscal cave-in. I’m reminded of the hysterics the first part of August 2011, when the government’s back was firmly against the wall and the politicians were able to wriggle off the hook and did nothing of substance, kicking the can down the road to this recent deadline. Now, faced with no other options but to cut taxes or cut spending, somehow they managed to negotiate Option C… none of the above. The tax increases at the top end will do little to increase revenues and the increased spending has already eaten up more that gain, increasing net spending by $3.9 trillion over the next ten years.
If can-kicking were an Olympic sport, our elected officials would all receive a gold medal. How the stock market can be pleased with this I have no idea. I was amazed at some of the comments in the media over the past few weeks saying that the fiscal cliff was a manufactured crisis. It’s hard to see how $1.6 trillion of annual deficit and a total long term debt of $16 trillion could be viewed as anything but a problem is difficult to understand. The fact that they solved the problem by doing nothing maybe means that it really wasn’t a problem after all. If it’s not a problem now, when will it be?
As I said last month, I hope that the hype was overblown but I am surprised at how much. Nevertheless, as always we will not argue with the market. Whether relief that a deal was done, or just a temporary reprieve, it appears that there is money to be made in the short-term and we are re-positioning back into equities.
That’s all for this month. Thanks for listening and we’ll talk to you next month.