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Reflecting on Our Ten Themes for 2012


A year has passed since I wrote this note.


Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.

It's 9:00 in the a.m., you're listening to, "W- I don't have to go to work today radio, brought to you by Kobolowski Tires. For the best in tires, ask for Chanice Kobolowski!"

OK-I don't work at Kobolowski Tires (anymore) but I was slated to take today off as part of my abbreviated "Staycation" that superseded our two-week South African honeymoon.

Truth be told, it was quite enjoyable; while most of it was spent in bed-not in the "honeymoon sense," but fighting off whatever everyone else in the family seemed to have-it allowed for some much-need QT with my wife and baby girl, including a superb 12-hour stretch of NFL football yesterday, which hasn't happened in ages.

These are some sticky times in the financial political arena, which, as you know, will have profound implications for the markets at large, so I felt compelled to weigh in.

While swirls of rumors, hints at compromise, and chatter of some "grand gesture" pushes numbers and our nerves in disparate directions, the flair for the dramatic-or rather, the utter embarrassment of the ineptitude of our once proud political system-is on parade for the world to see.

With one eye on the headlines, another on the clock, and yet another on performance---2012 letters get written this week--emotion is at our YTD high. From a trading standpoint, I haven't touched my (light and tight house money) smallish book, where I'm long select situations and own some S&P out-of-the-money puts against it, which have seen more swings than a hedonism vacation.

I read a column in the Wall Street Journal that opined that 2012 Was a Good Year for Stocks and a Bad Year for Stock Pundits. My take on self-proclaimed pundits are well-known-I'm not a fan, they're only as good as their last trade, those who blindly follow someone on a hot streak-or because they happen to talk louder than other pundits-could make cake…until they lose it all. In fact, I tried to Debunk the Pundits in 2009, but nobody seemed to pay much attention.

Be that as it may, I did offer Ten Themes for 2012 last year and as we don't hide in the 'Ville, I felt we should reflect back on how accurate they were, if only to be held accountable for the good, bad, and ugly. The following are the Ten Themes, and how they worked out with the benefit of hindsight

1. Interest Rates: Policymakers have done everything humanly possible to maintain a zero-interest rate policy with hopes of spurring lending and encouraging spending. As 2012 progresses, market forces will begin to spur the migration toward higher rates, which will negatively impact bond markets.

Result: I'm typically early but as these were 2012 themes, I was dead wrong on this one. The question continues to be when The Great Reset takes place; given the buff corporate credit markets (courtesy of the transfer of risk from the private sector to the public pockets), I suggest this may be another four years out, but only time will tell when one of the other release mechanisms-social mood, currency wars, interest rates, oil shock-blows a gasket prior to that.

2. Europe: There is a light at the end of the Autobahn but with $200 billion in debt maturing in the 17-member eurozone in the first quarter alone, the overseas dynamic should get worse before it gets better. Keep an eye on the Germans. If they allow the issuance of "euro bonds," stock markets around the world will react favorably as obligations are (again) pushed into the future. Absent that, expect to see plans mapped for a slimmer European Union.

Result: Europe weighed heavy on global markets in the first half of the year before the can was kicked up the hill. They're still kicking and fighting and screaming-this is far from resolved-but I continue to expect a slimmer European Union-perhaps much slimmer-as a function of cultural chasms and financial fatigue.

3. Real Estate It's impossible to catch the bottom of a housing cycle, but investors with a ten-year time horizon will hunt for bargains-and find them! With mortgage rates at all-time lows, seeds of the eventual recovery will begin to sow. This will be a prolonged process, but every journey begins with a single step.

Result: So far, so good; while you don't buy a home as a speculator-there is psychic income involved- I believe the lows are in for select (desirable) real estate. I put my money where my mouth was in 2012, so perhaps I should disclose that position as well.

4. Brinkmanship: If you thought the partisan bickering was tough to swallow last year, brace yourself as the presidential election edges closer. I offered in 2008 that the enormity of the economic condition was bigger than any one man or political party - and that remains in play. While I am a registered Independent, my sense is that President Barack Obama will secure a seat in the Oval Office for four more years, and rumblings from the Republican contingency will reverberate in kind.

Result: A year after the US debt downgrade, we're now clinging by our fingernails to the fiscal cliff. The election-won by Obama-has served to fortify the divide, not only between red and blue states, but between Main Street and Wall Street and the haves and the have nots. Unintended consequences continue to abound.
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