2012 Stock Market rise fueled by Supply/Demand Dynamics & Fed Induced Liquidity
By The Curmudgeon
crucial question for main street remains: if corporate earnings have
done so well since the great recession, why hasn't GDP growth been way below
trend rate of 3% and why has unemployment not come down to below 7%? The
answer is that profit growth was mostly due to cost cutting, rather than
large increases in top line growth (i.e. revenues)! We don't think that
trend can continue in 2013.
But as we said in an earlier post we don't believe that earnings drive stock prices anymore. So what to expect for 2013? Expect uncertainty and a huge increase in volatility from the relatively calm market experienced in the past year. This is due to no real progress on Congress agreeing to reduce the U.S. federal deficit which has been running at over $1T for the last four years. As most have already opined the fiscal cliff deal didn't really resolve anything. The tough negotiations lie ahead and this time, that cannot be kicked further down the road!
Till next time......
Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.