Advice for Investors in 2012: Balance Allocations, Strategize, and Hang On Tight!
Those continually beating the negative drum will have a few wins in 2012, but those who have good portfolio balance will be rewarded for patience -- especially here in the U.S.
Now let's look at what negative headwinds we're probably still facing for 2012:
The elephant in our American living room, politics and the messy sausage-making process of the primaries, has revealed no real details or reasonable economic plans from any of the presidential candidates. All they want to do is throw bombs at each other and spout vague, unverifiable talking points. This is why I will stand by a statement I made in May of 2011 (before Europe flared-up again and the SEAL Team had just killed Osama bin Laden): The GOP continues to overlook the enormous advantage of incumbency in general and specifically the bully-pulpit of the presidency.
Can anyone recall the Democratic strategy in 2004? That's right; they were exclusively and rabidly focused on getting "Dubya" out of the White House no matter what. So blinded by the extremist nature of the attacks that not only did they lose, they failed to significantly cut into his majority in Congress. The GOP is currently employing their own circular firing-squad technique and completely ignoring the wide-open opportunity amidst heavy Democratic retirements to capture the Senate and solidify overall control of Congress.
This, as longtime readers will all recall, is where my rooting interest truly lies – actual parity and balance in our government: one party controlling the full Congress and the opposite in the White House. That situation has been proven to be far more pro-business and pro-U.S.-economy than any of the dogmatic hogwash to spew forth from one-party rule from either side of the aisle. (I shared a chart from JPMorgan confirming that very position last summer.) That is the ideal, but since everything political has gone against the markets over the past couple of years, I'm putting this in the negative column for now (i.e. similar to the 2011 market, lots of smoke, noise and emotion as we roll toward the elections, but no real change once the dust settles). Something to keep an eye on -- I truly hope I'm wrong on this one.
Another negative is the continued, political criticism of Ben Bernanke – he is doing what he's doing to combat the dangerous inaction of the current White House and most egregiously, the Congress (as well as the Europeans who have meetings to schedule meetings and discuss points to put together a schedule to, blah, blah, blah….) He would likely not need to employ many (or any) of the current hated techniques (Operation Twist, QE1, QE2, et al) if there were some form of fiscal rationality or consistency coming from anyone inside the beltway. Again, nothing likely to change until at least next year -- circling back to my analogy above -- when I believe our term paper will be due. (Bush tax cuts expiring again, more debt ceiling issues, etc.) The one positive I see is that Helicopter Ben & the Fed governors do seem to grasp what needs to be done to keep this ship sailing and have shown that they will act when necessary with creativity not seen (or required) from the Fed of old.
The case against a change in personal outlook and investor sentiment this year goes back to politics and the media as well – I hate to keep harping on all of this circumstantial stuff, but as I mentioned above, in the U.S. the actual numbers continue to improve. Politics and the uncertainty driven by political flip-flops are what are keeping us down. Every print & broadcast media report is so negative it's mentally draining, and the baby boomers have seemingly given up. They have spent their lives in the land of milk and honey with not a care in the world except "what will I buy next?"
Boomers as a generation epitomize the "Grasshopper" from the old parable – and winter (retirement) is on the way. (I know, I know -- not everyone fits the description, but the generation is large enough that the majority has always mattered economically.) We know their parents more embodied the "Ant," and many of the generations behind them will be forced to think that way because of the irresponsible economic largesse.
The formerly irrationally exuberant members of the '80s "me generation" need to stop worrying about what they didn't do prior and look forward with a positive and realistic eye to see that retirement has never been one point in time from a financial perspective – it is a long period over the final stage of life.
Being wildly conservative (so you think) with your remaining capital after you have already failed to save properly merely gives you zero opportunity for improvement over the years ahead. Does anyone think that locking into less than 2% for 10 years is a sound financial idea? I'm not saying push it all in and spin the wheel, but you always have to have a little bit of growth potential on the books. There have been periods this extreme in outlook a couple of times before, but none this negative since the mid-1970s.
The cry of "risk on" or "risk off" on TV has helped to make watching the flickering ticks almost like sports, but for the majority of folks out there it would be best to just turn it off. Our investing culture has fallen prey to the short attention spans and the immediate gratification or disappointment of other phases of life. We spent two recent decades always looking for what might work – we're now spending one looking for everything that won't. Be careful on the crowded port side of that boat -- sometimes things go well.
My bottom line for 2012: I think those continually beating the negative drum will have a few wins (thanks mostly to politics), but I think those who have good balance in their allocation will be rewarded for patience – especially here in the U.S. The increased volatility of the recent few years is likely with us for good, so strategize, hang on tight, and have a great year.
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