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Thursday, March 22, 2012

It's Like Deja-vu, All Over Again

It’s Like Déjà-vu, All Over Again

Leon C. LaBrecque, JD, CPA, CFP®, CFA

Funny how sometimes you can see weird patterns emerging. For example, take the beginning of 2011:

  • The S&P 500 started at about 1257;
  • In the first 45 days, it went up about 6.9%;
  • In the first three months, we had three progressive unemployment reports.

Now have a look at 2012:

  • The S&P 500 started at about 1257;
  • In the first 45 days, it went up about 6.9%;
  • In the first three months, we had three progressive unemployment reports.

The quote from Yogi Berra seems appropriate.

Here’s a chart:

Now, to quote Yogi again, ‘the future ain’t what it used to be’. Consider last year (2011), after a decent run up to mid-year last year, the Greece debacle started, and then in August, the real debacle with the Debt Ceiling expiration, coupled with the Treasury downgrade, took the S&P down almost 20%. Well heck, those were unexpected problems: who would have thought that the Greek debt problem was so big? Who would have thought that Congress couldn’t solve a simple problem?

So look at this year: We have maybe a few more tiny issues in the hopper, to wit:

  • The Supreme Court decision on the Obama Healthcare Mandate in June;
  • Iran;
  • The Presidential election;
  • The Senate elections;
  • The expiration of the Bush Tax Cuts 12/31;
  • The Sequestration Budget Cuts on 01/01/13;
  • The new UIMC on dividends, interest and capital gains on 01/01/13;
  • Oh yes, and the next expiration of the debt ceiling in early ‘13

Now, I’m not a cynic, but if Greece and the debt ceiling can cause problems, maybe one or more of the eight listed above could as well. So, our version of the year is tactical: take profits if possible and protect against the storm (if there is one).

What does it all mean? Well, suppose last year I told you I knew two things would happen: the US Treasury would be downgraded, and that Steve Jobs would die. You’d probably logically avoid Treasury bonds and sell your Apple stock. Both would have turned out to be bad ideas. So, for now, we have to look at the upcoming storm clouds, pay attention, and modify the plan as necessary. To quote Yogi one more time: ‘If the world were perfect, it wouldn’t be.’

Leon