2012 in Review.

2012 in review

Let's look how did the stock market do for 2012.

DJIA -  Gain of 7%

NASDAQ Composite - 13% 

S&P 500 - 13% 

Looking at the stock market, the January Barometer worked! Not to mention that this year was the presidential's midterm election year. Not too bad of a year to be in despite the volatility.

Let's look at what the Fed did in 2012.

Central Banks Maintained Accommodative Policy Course, With Diminishing Returns 

·         January 25th - The Fed said it would keep rates low through 2014. 

·         June 20th - The FOMC extended its 'operation twist' program until the end of 2012.

September 13th -- The Federal Reserve announced its decision to increase policy accommodations by purchasing additional agency mortgage-backed securities at a pace of $40 bln per month.


December 12th -- The Fed announced ‘Operation Twist' will be replaced by a Treasury purchasing program with an initial rate of $45 billion per month. The key interest rate was expected to remain at exceptionally low levels until a target unemployment rate of 6.5% is reached.

·         Looking ahead to 2013, the Fed voters will change at the end of this year and will become slightly more dovish overall.

Politics Added Volatility to Markets

·         U.S. Presidential Election

·         Key indices rallied into the election and the S&P 500 advanced nearly 1% on Election Day, only to fall 6% in the two weeks following.

·         The loss of optimism post-election was attributed to questions whether a Democratic president and a split Congress can strike a budget deal to avoid going over the fiscal cliff. 

·         Fiscal Cliff Arrived at Year's End

·         Following the U.S. presidential election, the attention turned to the budget debate. The automatic spending cuts and tax hikes scheduled to take place if no budget agreement is reached became known as the 'Fiscal Cliff.'

·         The markets maintained their upward bias through the bulk of the debate, but the final week of the year resulted in a sell-off as the likelihood of a timely compromise diminished.

 

 Looking at the 9 Sectors ETF, we can see clearly that Financials, Consumer Discretionary and Healthcare have been leading the market. That proves the strength in the market. Not only that, There was a record high of shoppers during Black Friday and Cyber Monday, up 9% compared to last year. That can be seen from the average consumer spending for 2012.

 On top that we can see a significant increase in retail sales as well.

This is definitely good news for retailers which is the reason why consumer discretionary has been leading the economy.

GDP per Capital has been rising since the financial crisis which threw the United States into the Great Recession.

Wait a minute. The consumers are feeling rich right now and let's look at what did the government do for 2012.

Here's the stats. The US government's budget is screwed up, the external debt sky-rocketed, and government spending is falling compared to previous years in 2009 and 2010. Let's do some math, if someone is spending way more than he makes, being financed by external debts, and somehow, his family seems like that they are doing well? That's exactly what is happening in the US economy.Is the economy as well as how it seems? Where did all these money come from? 

Quantitative Easing. The printing of money to finance all these spending and injected into the economy. And guess what... Most of these money goes to the financial institutions. The financials borrow money from the central bank at a low interest rates and bought Treasury bonds, which is deemed to be a risk free asset in the financial world that gave them a higher return than the rate that they borrowed. So in return, the government has to pay these financials back for 'borrowing' the money from these financials with interest. And who pays the interest? The US citizens. It's a huge ponzi scheme that is happening in the US right now and it is creating an illusion that the market is well and alive. The whole world is now hooked on Quantitative Easing. 

In the last Fed Meeting on 12 Dec 2012, the Fed announced an additional asset purchasing program, aka QE4. The Treasury will be purchaasing $45B of assets per month until the unemployment rate hits a 6.5%. This is the first time the Fed sets an economic target on their stimulus plan. However, this is going to be a long way to go. The 6.5% employment rate will be taking at least another 2-3 years to materialise. Taking into consideration that the whole world is already slowing down. Exporting nations like China has not been producing as much, Japan and Singapore is already in recession, having the economic problems in the Eurozone. It is pretty apparent that the global economy is in a slump and all these nations have already ran out of bullet. Now, the only thing that the world can do is to print more money to get themselves out of recession. 

And I am definitely not optimistic if the world decides to stop their QE. Guess what happens if you get a drug addict to stop taking drugs? Do your own inference. 

The US economy used to produce a lot. But look at their current state. Industrial production is now at a depressed level and jobs are not coming back just yet. And how on earth are they going to achieve their economic goal of 6.5% unemployment rate?

2013 in Preview

Looking at the current state of economy right now, I am definitely not bullish on the economy. However, there might be still some upside(not a lot more) to go in the stock market. I'm suspecting 2013 to be very volatile, with the market hitting the pre-subprime levels where the economic situation is much better. Not only that, the next correction will be definitely more violent and faster. As we do not have a Santa Claus Rally in 2012, we're likely to have a shaky 2013 and a lot of people will be looking at the January Barometer to position themselves. 

 The Congress has just voted in favor of the bill to increase the tax rates of the wealthy individuals while retaining the Bush-tax cuts and delayed the Fiscal Cliff by another 2 months so that both political parties can take their own sweet time to sort out their differences. At the same time, the US debt ceiling has been raised to 18 Trillion dollars. Another 2 trillion dollars to be printed in the years to come. If the market is gonna be up, it's gonna be a artificial bull market. Anything that has no good fundamentals supporting it will eventually crash.

So let's stay tune to look at how January fare in 2013. In summary, 2013 will be a roller coaster ride. 

Wishing all of you a very happy new year and the best of luck in the market.

Special Credits

2012 is definitely a very eventful year for me. Having to head to KL to train with other trainers in the Wealth Academy Traders community definitely increased my exposure tremendously.

I would definitely wanna give my gratitude to my mentor, Conrad Alvin Lim, for all these opportunities. I will definitely make 2013 a more profitable and more fulling year!

SG Trainers having dinner in Petaling Jaya after Trainers Training!

Me presenting to a crowd of 300 on the Fiscal Cliff during the Xmas Gathering

Me conducting a TOS workshop for Wealth Academy Trader participants

 Me on the Sunday Times!


 
Me and my committee  for the Youth Financial Symposium for SIM University

Conducting the Introductory Course to Stock Market in SIM

A supposedly last dinner before the 'apocalypse'


And most importantly,

My sister got married on the 30 Dec!

Sooner or later, you start taking yourself seriously.
You know when you need a break.
You know when you need a rest.
You know what to get worked up about and what to get rid of.
And you know when it's time to take care of yourself, for yourself.
To do something that makes you stronger, faster, more complete.
Because you know it's never too late to have a life.
And never too late to change one.

Just Do It !

My Facebook link -> https://www.facebook.com/aves777