From the Desk of Joe Rollins
The year 2012 is now behind us, and from a financial standpoint, it was quite a remarkable year. Even though the 4th quarter of 2012 was basically flat, other markets in the world rallied and closed the year at a financially satisfying level. It pleases me to report that my forecast 2012 ending with a mid-double-digit gain was spot on. For the year, the S&P Index of 500 Stocks ended up exactly 16%, and admittedly, that result exceeded my expectations.
In many respects, 2012 was a strange year from an investing standpoint. There was so much confusion and discourse politically, and the headlines seemed to blare out nothing but negatives. While the economy continued chugging along at a little over breakeven, the media reports may have given you reason to believe things were much worse than they actually were. While there were extraordinary problems in Europe and multiple military conflicts in the Middle East, there seemed to be a concentrated effort by corporate America to improve profits and stay above the fray.
With the Presidential election in the United States and as the year came to a close, some interesting financial circumstances were taking place worldwide. In the U.S., the financial markets were essentially flat during the 4th quarter, but there was a significant rally in the international markets. In many cases, high yield bonds actually exceeded the total return by the S&P 500 for 2012. Unusually, most of the international markets were terribly negative for most of the year, but wound up rallying in the 4th quarter. In the U.S., on the other hand, the markets rallied at the beginning of the year, faded in the summer, and rallied again the fall. At the end of the day, almost all financial instruments added to the extraordinary gain for the year.
I mentioned the equity markets ended with mid-double-digit gains, but interestingly, so did most international markets and high yield bonds. There aren’t many years in history where virtually all financial assets were so strong.
I meet with clients nearly every day, many of whom express high levels of skepticism regarding the financial markets, a fear that I’ve never quite understood. In most cases, these clients hold significant amounts of cash earning practically zero. I certainly understand the dynamics of not wanting to invest in the high volatility investments that some equities represent, but there are so many other very stable investments that would provide a yield 400% higher than what cash is returning.
For example, the other day I suggested to a client that he purchase Southern Company stock with a total yield of 4.5%. This is, of course, a regulated industry selling electrical power in the most financially stable part of the United States. What could be safer than this investment? The client expressed outrage in my suggestion and stated that he would never invest in anything representing equity. I just can’t understand why some people insist on passing up a truly safe investment that would improve their yields by a multiple of what they’re earning now.
My purpose in writing these posts is to attempt to inform my clients on the positives of investing. However, many clients refuse to evaluate investing with the same eye for yield as they do their own financial house or business.
Fortunately, the investing public doesn’t seem to be very swayed by the incredibly negative news and the completely dysfunctional political scene. I can’t recall a more divisive time in our government where the two political factions believe they are each absolutely correct and are in such conflict of one another.
After months and months of hearing about the “fiscal cliff,” absolutely nothing was accomplished by the deal that was signed. The American Taxpayer Relief Act of 2012 was passed that increased everyone’s taxes, but there was no progress on solving the deficit issue. In fact, the “fiscal cliff” bill and the Senate-approved Superstorm Sandy aid bill – contain pork project after pork project. At the height of our distress in attempting to get the federal budget under control, enormous projects were passed with no economic value and only payback to political operatives. Who would think that providing a huge tax break to the movie industry in the “fiscal cliff” bill would be appropriate? Reports reflect that 2012 was the best year ever at domestic box offices. Likewise, who would think it necessary to throw in aid for fishery disasters in Alaska and Mississippi in the Superstorm Sandy disaster aid bill? Only our congress could validate such abuses.
In spite of our dysfunctional government, the year 2012 was successful on many levels. Along with the S&P’s gain of 16% for the year, the NASDAQ ended the year up 17.5%, and the Dow was up 10.3%. However, for the 4th quarter, all three major indices were down – the S&P was down .4%, the NASDAQ was down 2.7% and the Dow was down 1.7%.
Looking forward, I truly believe that there are further gains to be earned in the financial markets. While 2012 rallied significantly, many of the same components that made 2012 successful are still evident at the present time. Corporate earnings continue to be excellent even though they aren’t rising at the level they were in 2012. While the economy is bouncing along the flat line, it is still positive.
Many economists have forecasted that the economy would fall into a recession in 2013 due to the higher tax rates, but I don’t share that opinion. Even though federal taxes increased for nearly all Americans through the expiration of the two-year payroll tax cut, the amounts are miniscule by any measure.
The U.S. government continues to run deficits that are mind-blowing. This year, it is forecasted that we will have another trillion dollar deficit – which would be the 4th year in a row that deficits will run at that high level. Regardless of the media rhetoric, there is no justification for deficits of this magnitude.
Europe has endured a difficult time, but has actually addressed its issues head-on. Unlike the U.S., Europe has exercised austerity, and they are attempting to balance the budget. Even though most economies in Europe are even or slightly negative, they’re a few years further along in dealing with their issues than the U.S. In fact, we’ve wasted the last four years with tremendous budget deficits and little progress towards solving these economic issues.
The foregoing is not to say that all things are bad from a financial standpoint. It shouldn’t be overlooked that the stock market is up almost 100% since President Obama took office in 2009. Looking forward, I see very few changes in the economy over the next few years. Clearly the federal deficits are a major negative, but that risk is a few years off. Earnings in 2013 will be higher, the Federal Reserve has essentially guaranteed that interest rates will be kept low, and I anticipate that the financial markets in 2013 will be highly volatile, but will once again experience double-digit returns – although not in the mid-double-digits like 2012.
At Rollins Financial, we’re committed to providing excellent service to our clients, and to that end, we would like to reiterate that we are readily available for face-to-face meetings and/or telephone conferences. We believe that portfolio reviews are critical to our process because they allow us to focus attention on your goals, account for any changes in your situation, and alter the course as necessary. Since we are entering tax season and because of the tax law changes, now is an ideal time to schedule a wealth strategy meeting. Please call our office at 404.892.7967 and we will be happy to set up a time for you.
Finally, have you contributed to your IRAs for 2012 and 2013 yet?
As always, the foregoing are my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.
Best regards,
Joe Rollins
The year 2012 is now behind us, and from a financial standpoint, it was quite a remarkable year. Even though the 4th quarter of 2012 was basically flat, other markets in the world rallied and closed the year at a financially satisfying level. It pleases me to report that my forecast 2012 ending with a mid-double-digit gain was spot on. For the year, the S&P Index of 500 Stocks ended up exactly 16%, and admittedly, that result exceeded my expectations.
In many respects, 2012 was a strange year from an investing standpoint. There was so much confusion and discourse politically, and the headlines seemed to blare out nothing but negatives. While the economy continued chugging along at a little over breakeven, the media reports may have given you reason to believe things were much worse than they actually were. While there were extraordinary problems in Europe and multiple military conflicts in the Middle East, there seemed to be a concentrated effort by corporate America to improve profits and stay above the fray.
With the Presidential election in the United States and as the year came to a close, some interesting financial circumstances were taking place worldwide. In the U.S., the financial markets were essentially flat during the 4th quarter, but there was a significant rally in the international markets. In many cases, high yield bonds actually exceeded the total return by the S&P 500 for 2012. Unusually, most of the international markets were terribly negative for most of the year, but wound up rallying in the 4th quarter. In the U.S., on the other hand, the markets rallied at the beginning of the year, faded in the summer, and rallied again the fall. At the end of the day, almost all financial instruments added to the extraordinary gain for the year.
I mentioned the equity markets ended with mid-double-digit gains, but interestingly, so did most international markets and high yield bonds. There aren’t many years in history where virtually all financial assets were so strong.
I meet with clients nearly every day, many of whom express high levels of skepticism regarding the financial markets, a fear that I’ve never quite understood. In most cases, these clients hold significant amounts of cash earning practically zero. I certainly understand the dynamics of not wanting to invest in the high volatility investments that some equities represent, but there are so many other very stable investments that would provide a yield 400% higher than what cash is returning.
For example, the other day I suggested to a client that he purchase Southern Company stock with a total yield of 4.5%. This is, of course, a regulated industry selling electrical power in the most financially stable part of the United States. What could be safer than this investment? The client expressed outrage in my suggestion and stated that he would never invest in anything representing equity. I just can’t understand why some people insist on passing up a truly safe investment that would improve their yields by a multiple of what they’re earning now.
My purpose in writing these posts is to attempt to inform my clients on the positives of investing. However, many clients refuse to evaluate investing with the same eye for yield as they do their own financial house or business.
Fortunately, the investing public doesn’t seem to be very swayed by the incredibly negative news and the completely dysfunctional political scene. I can’t recall a more divisive time in our government where the two political factions believe they are each absolutely correct and are in such conflict of one another.
After months and months of hearing about the “fiscal cliff,” absolutely nothing was accomplished by the deal that was signed. The American Taxpayer Relief Act of 2012 was passed that increased everyone’s taxes, but there was no progress on solving the deficit issue. In fact, the “fiscal cliff” bill and the Senate-approved Superstorm Sandy aid bill – contain pork project after pork project. At the height of our distress in attempting to get the federal budget under control, enormous projects were passed with no economic value and only payback to political operatives. Who would think that providing a huge tax break to the movie industry in the “fiscal cliff” bill would be appropriate? Reports reflect that 2012 was the best year ever at domestic box offices. Likewise, who would think it necessary to throw in aid for fishery disasters in Alaska and Mississippi in the Superstorm Sandy disaster aid bill? Only our congress could validate such abuses.
In spite of our dysfunctional government, the year 2012 was successful on many levels. Along with the S&P’s gain of 16% for the year, the NASDAQ ended the year up 17.5%, and the Dow was up 10.3%. However, for the 4th quarter, all three major indices were down – the S&P was down .4%, the NASDAQ was down 2.7% and the Dow was down 1.7%.
Looking forward, I truly believe that there are further gains to be earned in the financial markets. While 2012 rallied significantly, many of the same components that made 2012 successful are still evident at the present time. Corporate earnings continue to be excellent even though they aren’t rising at the level they were in 2012. While the economy is bouncing along the flat line, it is still positive.
Many economists have forecasted that the economy would fall into a recession in 2013 due to the higher tax rates, but I don’t share that opinion. Even though federal taxes increased for nearly all Americans through the expiration of the two-year payroll tax cut, the amounts are miniscule by any measure.
The U.S. government continues to run deficits that are mind-blowing. This year, it is forecasted that we will have another trillion dollar deficit – which would be the 4th year in a row that deficits will run at that high level. Regardless of the media rhetoric, there is no justification for deficits of this magnitude.
Europe has endured a difficult time, but has actually addressed its issues head-on. Unlike the U.S., Europe has exercised austerity, and they are attempting to balance the budget. Even though most economies in Europe are even or slightly negative, they’re a few years further along in dealing with their issues than the U.S. In fact, we’ve wasted the last four years with tremendous budget deficits and little progress towards solving these economic issues.
The foregoing is not to say that all things are bad from a financial standpoint. It shouldn’t be overlooked that the stock market is up almost 100% since President Obama took office in 2009. Looking forward, I see very few changes in the economy over the next few years. Clearly the federal deficits are a major negative, but that risk is a few years off. Earnings in 2013 will be higher, the Federal Reserve has essentially guaranteed that interest rates will be kept low, and I anticipate that the financial markets in 2013 will be highly volatile, but will once again experience double-digit returns – although not in the mid-double-digits like 2012.
At Rollins Financial, we’re committed to providing excellent service to our clients, and to that end, we would like to reiterate that we are readily available for face-to-face meetings and/or telephone conferences. We believe that portfolio reviews are critical to our process because they allow us to focus attention on your goals, account for any changes in your situation, and alter the course as necessary. Since we are entering tax season and because of the tax law changes, now is an ideal time to schedule a wealth strategy meeting. Please call our office at 404.892.7967 and we will be happy to set up a time for you.
Finally, have you contributed to your IRAs for 2012 and 2013 yet?
As always, the foregoing are my opinions, assumptions and forecasts. It is perfectly possible that I am wrong.
Best regards,
Joe Rollins
