Category
Larry D. Spears
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History Says Lost Decade For Stocks Should Lead to a New Bull Market … But Will It?
In its 1969 song "Spinning Wheel," the rock group Blood, Sweat & Tears immortalized the phrase "what goes up, must come down."
I cite this bit of music trivia in an investment story for two reasons: First, the name of the band fairly well describes the conditions attached to the stock market's historically sad performance over the just-completed decade. Specifically, a lot of blood, sweat and tears – thankfully followed by a tiny bit of healing in the final eight months of 2009.
Second, for those more attuned to mathematical theory than music, the market results for the 10 years from 2000 to 2009 provide the basis for a prediction for the coming decade – one essentially the inverse of the band's famous phrase. To be more precise, "what went down, must now come up."
That forecast is based on a fairly simple principle: Things that move in wave patterns – such as the stock market – have an overwhelming tendency to "revert to the mean." In other words, when stocks perform well above their long-term historical norm (known as the "arithmetic mean") for an extended stretch, they usually have to underperform for an extended period to get back in line with that long-term mean.
Conversely, when stock-market performance is well below the norm for a long stretch, it theoretically should enjoy an extended run well above the historical mean in order to bring the market's performance back in line with the long-term norm.
And the decade we've just completed was definitely far below that norm.
The prediction is also based on historical precedent, as demonstrated by past per-decade performances of the major stock market indexes.
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The Seven Investment Risks to Avoid in 2010
Spurred by its best annual performance since 2003, U.S. stocks stampeded into the New Year, with the Dow Jones Industrial Average, the Nasdaq Composite Index and Standard & Poor's 500 Index posting gains of 1.49%, 1.73% and 1.60%, respectively. And while that's certainly a respectable beginning, investors shouldn't assume it signals that a bull market run its course for the full year.
Indeed, while Money Morning's outlook for 2010 is generally positive, there are at least seven major risks that could rein in the charging bull – or even release an angry bear into the trading arena. The top risks consist of:
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How to Make the Most of a Resurgent M&A Market in 2010
Unlike this time last year, prospects for U.S. corporate mergers and acquisitions (M&A) appear robust heading into the new year. And that bodes well for investors astute enough to identify the sectors where action will likely be hottest.
As an indication of the improving outlook, nine deals with a total value of $19.9 billion were announced from the start of December through Christmas Eve. That came on top of November's 14 M&A announcements, which were valued at $63.175 billion – although that number was distorted somewhat by Warren Buffett's $26.52 billion bid for the 78% of Burlington Northern Santa Fe Corp. (NYSE: BNI) he didn't already own.
By contrast, archives of merger-tracking Web site The Online Investor, show 15 deals involving publicly traded U.S. stocks in December 2008, but the total value was a meager $3.986 billion. (That's not counting the $8.8 billion merger of Japanese electronics giants Panasonic Corp. (NYSE ADR: PC) and Sanyo Electric Co. (OTC: SANYY), which brightened the global picture somewhat.) November 2008 had 14 deals valued at just $4.898 billion.
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The "January Effect" Could Offer Quick Gains for Small-Cap Investors
If your investing tastes run more to small-cap issues than the giants of the Dow Jones Industrial Average and other major indexes, you could find 2010's best buying opportunities before the new year even starts – today (Tuesday) and tomorrow to be precise. That's the promise of the so-called "January Effect," historically one of the most reliable of the recognized stock market anomalies.
Although there are some minor variations, the primary thrust of the January Effect states that stocks do better in January than in any other month – and small stocks do better than large stocks, with the bulk of the gain realized from the final trading day of December through the middle of the following month.
While the first portion of that hypothesis isn't strictly true – historically, April has held a slight edge over January in general stock market performance – the small-stock portion has a strong record. In fact, in some years, small-stock gains in the first trading days of January have accounted for the sector's total advance for the entire year.
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Could a Spike in Bond Yields Cause the Economy to Stumble in the New Year?
In normal times, at their most basic level, bond prices follow some very simple laws of financial physics: When interest rates rise, bond prices fall and bond yields rise; when rates fall, bond prices rise, and bond yields drop.
However, bonds could break those laws of financial physics in the New Year – and in a big way. That could inflict some real financial pain on the U.S. recovery, the dollar, the shuddering housing market – and could even ignite a major stock-market reversal.
The U.S. Federal Reserve continues to hold rates on U.S. Treasury securities to artificially low levels – a strategy central bank Chairman Ben S. Bernanke just this week said the Fed intends to adhere to for the foreseeable future.
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Billionaires Turn to Beggars as Financial Crisis Torches the World's Fortunes
The holiday season is traditionally the time when society extends a helping hand to the less fortunate among us. But this December, thanks to the world's continuing economic unease, we've got a whole new class of "poor" people to worry about.
They're called billionaires – or, even more tragic, "ex-billionaires" – and, according to Forbes magazine, they've taken a bigger financial hit in the past 15 months or so than in any year since the magazine started tracking the fortunes of the world's richest people back in 1987.
In fact, the most recent Forbes survey found that the total number of billionaires around the globe plunged from a record 1,125 in early 2008 to just 793 in March 2009 – a net decline of 332, or 29.5%. Even worse, the total net worth of the world's recognized billionaires plunged 45.4%, from $4.4 trillion in 2008 to just $2.4 trillion this year (numbers are based on stock prices and other values assessed in mid-February). That translates to an average net worth of just $3 billion, down 23%, or $910 million, from 2008.
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Hot Stocks: Is Markel Corp. a Berkshire Hathaway in the Making?
Ask any 10 U.S. investors to name the most-admired American financial figure and it’s a pretty good bet at least nine of them will answer Warren Buffett.
Thus, it should come as no surprise that other firms would want to emulate the business strategies of Buffett’s company, Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) – which is exactly how Markel Corp. (NYSE: MKL) is making its name on Wall Street.
Like Berkshire, Markel Corp. lists its primary business as insurance – but it’s no State Farm Insurance or Allstate Corp. (NYSE: ALL). Rather than selling auto or homeowners policies directly to consumers, Markel and its subsidiaries (listed below) sell specialty insurance products and programs in an assortment of niche markets.
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Will Cyber Monday Success Set the Tone for the Holiday Season?
E-commerce sales on "Cyber Monday" – the first Monday following the Thanksgiving holiday – climbed to record levels this year, but that success doesn't necessarily mean the holidays will bring more cheer to retailers.
Virtually every retailer with an online presence dressed up its website with special offerings, and many of the bigger ones – RadioShack Corp. (NYSE: RSH), Best Buy Co. (NYSE: BBY) and Target Corp. (NYSE: TGT) – sent out targeted e-mails offering their best customers discounts of up to 40% on Internet purchases. The tactics worked, as an estimated 96.5 million Americans went online Monday to buy everything from toys, books and music CDs to high-end fashions, jewelry and flat-screen TVs.
