Baseline Charts for 2012
I think it is important to see what the markets have done in the past, given the global economy's performance.
First, what has the SP500 done compared to its sectors. I add MOO (agriculture) and IYR (real estate) because in my opinion they have sufficient economic differences from the other sectors and you can invest in them.
First thing that strikes me is the increase in volatility in 2011 compared to 2010. Next is the high correlation in market declines and the lack of correlation in market rallies. Another interesting observation is the volume spikes occur in or near the beginning of market declines. The one thing that really surprises me is the strength of the consumer, XLY and XLP. While their balance sheets have improved over the past few years, wages have been stagnant and employment is still tough to come by.
Next let us compare Market Capitalization.
Market theory suggests that more risk more return and Small Cap stocks (IWM) have the most risk. Given that, is MDY (mid cap) doing better than it should relative to small cap or is small cap under performing? I would also point out market cap's are highly correlated.
Now, SP 500 against the world.
While I know Europe is having some financial difficulties, but it is not like the US Congress is doing any better. This chart really surprises me given how weak the US dollar has been for the past five years. Frankly there looks like some opportunity in this chart, but the scary part is how correlated the world has become.
On to Bonds.
I am dumb founded by the performance of long duration Treasuries. TLT, followed by IEF, and TIP. If I didn't know better, investors are giving high marks to the US Congress and its financial management of the country. Can you say BUBBLE! I am at a loss to explain this, it makes no sense whatsoever!
I am going to add a new chart this year because Currency has become such an important aspect to investing in the modern world.
It is hard to fathom the percentage changes in global currencies in the past two years. It is obvious why the Swiss intervened and pegged the Swiss Franc to the Euro, they were being priced out of the export market of goods and services. The other surprise is how poorly the Mexican Peso has performed in the past 12 months given its oil exports. One last thought is on correlations, notice the other currencies are almost negatively correlated to the dollar (as it should be). The question is why does currency changes not flow through to the equity markets?
Good luck in 2012, I will be posting my predictions for 2012 tomorrow and several were derived from this little exercise.
First, what has the SP500 done compared to its sectors. I add MOO (agriculture) and IYR (real estate) because in my opinion they have sufficient economic differences from the other sectors and you can invest in them.
First thing that strikes me is the increase in volatility in 2011 compared to 2010. Next is the high correlation in market declines and the lack of correlation in market rallies. Another interesting observation is the volume spikes occur in or near the beginning of market declines. The one thing that really surprises me is the strength of the consumer, XLY and XLP. While their balance sheets have improved over the past few years, wages have been stagnant and employment is still tough to come by.
Next let us compare Market Capitalization.
Market theory suggests that more risk more return and Small Cap stocks (IWM) have the most risk. Given that, is MDY (mid cap) doing better than it should relative to small cap or is small cap under performing? I would also point out market cap's are highly correlated.
Now, SP 500 against the world.
While I know Europe is having some financial difficulties, but it is not like the US Congress is doing any better. This chart really surprises me given how weak the US dollar has been for the past five years. Frankly there looks like some opportunity in this chart, but the scary part is how correlated the world has become.
On to Bonds.
I am dumb founded by the performance of long duration Treasuries. TLT, followed by IEF, and TIP. If I didn't know better, investors are giving high marks to the US Congress and its financial management of the country. Can you say BUBBLE! I am at a loss to explain this, it makes no sense whatsoever!
I am going to add a new chart this year because Currency has become such an important aspect to investing in the modern world.
It is hard to fathom the percentage changes in global currencies in the past two years. It is obvious why the Swiss intervened and pegged the Swiss Franc to the Euro, they were being priced out of the export market of goods and services. The other surprise is how poorly the Mexican Peso has performed in the past 12 months given its oil exports. One last thought is on correlations, notice the other currencies are almost negatively correlated to the dollar (as it should be). The question is why does currency changes not flow through to the equity markets?
Good luck in 2012, I will be posting my predictions for 2012 tomorrow and several were derived from this little exercise.
Posted by Bradley Fluetsch at 12/31/2011 10:06 AM 
Categories: Asset Allocation
Tags: market performance stock bond currency SPY Congress dollar money retire invest gold
Categories: Asset Allocation
Tags: market performance stock bond currency SPY Congress dollar money retire invest gold
Comments