At the end of 2008, there was much reflection on the markets and exchange traded funds (ETFs), as well as predictions for the coming year. After the first quarter, it’s time for a little reflection.
Todd Harrison for MarketWatch sheds some light on his market perceptions, comparing how things looked in January to how they look now:
- January: Rage against the machine (of wealth). A steady stream of social strife will endure as the rejection of wealth increases in size and scope. Social unrest or geopolitical impact will become evident and abundant. Update: From public outrage over AIG (AIG) bonuses, to vandals attacking the home of the former CEO of the Royal Bank of Scotland, to North Korea threatening war against Japan if they interfere with a planned missile launch, the world is an angry place. The socioeconomic mindset remains the single greatest risk as this crisis evolves from financial to economic to social.
- January: Hedge fund upheaval. 50% of hedge funds were deemed to not exist anymore and this has been expedited wit the Madoff scheme unraveling. Update: Most funds typically require a 30- to 60-day notice on redemptions, so the post-Madoff fallout may not be felt fully for a little bit.
- January: Equity and credit readjust. Equity and credit were going to collide in an ugly scheme. Four months later, despite lower prices and massive government intervention, the equilibrium between equity, credit, commodities and currencies is an illusion. Update: The Public-Private Investment Program (PPIP) to TARP will set up future generations to clean up after this mess.
- January: Motion and movement. Wild swings in the markets with crazy ups and downs. Update: A vicious downdraft began the year and took the tape of the S&P 500 to 666, followed by the first of our perceived 20% lifts. The new bull is ready to charge, or is it?
- January: Pension panic. Unfunded pension plans and bankrupt municipalities should jockey for thought in 2009 as the financial crisis evolves. Update: The former chief regulator for the $2.7 trillion municipal bond market acknowledged last week that the governing board failed to save taxpayers upwards of $1 billion of losses because of opaque financial products. Is this just the beginning?
- January: Employment crisis. Unemployment is on the rise, and the ones with jobs are feeling relative pay cuts, rather than salary bumps, to be a central theme this year despite them working twice as hard to absorb the productivity chasm. Update: 25% of companies surveyed have instituted salary freezes for 2009. Projections indicate that will rise to 33% by the end of the year. Pay cuts remain an intuitive next step.
- January: Industrial revolution. The entire spectrum of industries, from finance to media to retail to philanthropy to academia, will be forced to reinvent themselves and the leaders coming out of this crisis won’t be the same as the leaders that entered it. Update: The financial stage as we know it will never be the same.
- January: Japan. They have a 25-year head start down the deflation road. You can’t spend relative performance but expect Japan to outperform U.S. equities this coming year. Update: The Nikkei ended the first quarter 8% lower compared with all major U.S. indexes.
- January: Alpha Bits. Buy-and-hold is a dead strategy so look deep for values in growth and small-caps. Update: Small-cap underperformed large-cap, and small value underperformed small growth in the first quarter, which generally means that investors are paying up for earnings and stability over cheap assets. Stay tuned for the second half of 2009.
- January: Profiting is a privilege and not a right. Update: Just as the creation of wealth and conspicuous consumption created an altered state of reality, the unwinding of the debt bubble and the attendant austerity will require patience, prudence and financial staying power.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.