Top 10 Market Stories of 2011

As we look towards the New Year, we pause to reflect on all the events of the past 12 months.

Financial Symmetry has covered several current events on our blog throughout 2011, and here are what we think the Top 10 Stories of the Year have been:

10) 9-9-9 Plan

• With a presidential election coming up in less than one year, and primary elections still months away, several primary candidates have proposed new economic plans that will “fix” the economy and succeed where they say the current administration has failed.
• Most famous this year was Herman Cain’s “9-9-9” plan, where he proposed a nine percent corporate business flat tax, nine percent income flat tax and a nine percent national sales tax

Our take:

While 9-9-9 was a catchy phrase, the plan was dead even before arrival since it would result in higher taxes on most Americans, lower taxes on the wealthiest Americans and a large increase in the federal deficit.

9)  S&P Downgrade

• On April 18^th, Standard & Poor’s issued a “negative” outlook on the U.S.’s “AAA” sovereign-debt rating, and warned there was a one-in-three chance of an outright reduction in the rating over the next two years.
• Part of the negative outlook was concern over the growing national debt, the fact that the US had hit its debt ceiling, and that Congress was seemingly unable to find a resolution to the problem.
• On August 2^nd, the deadline given by the Treasury, Congress and President Obama enacted a bill to lift the debt ceiling and reduce the federal deficit.
• On August 5^th, S&P decided that the budget plan did not go far enough to address the country’s debt, and lowered the credit rating of the United States from AAA to AA+, for the first time in the countries history.
• Many were worried this would result in another world-wide recession.
• However, U.S. treasury bonds, which had been the subject of the downgrade, actually rose in price and the dollar gained in value against the Euro and the British pound…

Our take:

• Should we be Worried about the Debt Ceiling?
• Is it the end of the world?

8)  MF Global

• MF Global was primarily a commodities broker
• On October 30^th, the company reported that customer funds were missing.
• On October 31^st, millions of dollars in customer accounts were frozen, and MF Global filed for bankruptcy.
• According to the CME Group Inc., MF Global broke rules on keeping customer money separate from its own trading accounts.
• $1.2 billion in customer money missing…

Our take:

MF Global’s failure appears to be the result of three primary factors: losses on bets made on European debt, the loose self regulatory framework applied to commodities brokers, and the political connections of their CEO John Corzine

7)  The biggest story not getting any attention

• Manufacturing and export industry going very strong…
• Anyone who is unemployed and follows the popular media outlets would think that there is next to no hope for an economic recovery anytime soon, much less any hope for finding a job.
• But there are two major areas that have shown strength since the bottom of the recession in 2009: Exports and Business Equipment Investment.
• So where is the media coverage for the parts of the economy that are actually improving???

Our take:

Why aren’t there more jobs?

6) Occupy Wall Street

• Beginning on September 17^th, an ongoing protest born out of frustration over a decade’s long trend of growing wealth and income disparity between the very rich and the rest of the country.
• It has inspired spin-off protests in hundreds of communities around the world.
• Though the leaders of the Occupy movement have yet to establish and promote definitive messages or goals, supporters continue to protest and occupy public and private parks around the country.
• The Occupy Wall Street movement drew direct inspiration from the Arab Spring.
• Time Magazine made the “Protestor” its person of the year.

Our take:

Occupy “insert city” defined.

5)  Arab Spring

• 2011 saw many Middle Eastern countries protesting against dictatorships or absolute monarchies, human rights violations, government corruption, economic decline, unemployment, and extreme poverty, among others.
• The most notable uprisings were in Tunisia, Egypt and Libya, where the governments were overthrown.
• Protests have also affected oil prices. The International Monetary Fund said oil prices were likely to be higher than originally forecast due to unrest in the Middle East and North Africa, major regions of oil production.
• The Occupy Wall Street movement drew direct inspiration from the Arab Spring.

Our take:

Middle East Turmoil and Your Portfolio

4)  Japanese Tsunami

• On Friday, March 11^th, the largest tsunami in Japanese history hit the Pacific coast of Tohoku, resulting in 15,841 deaths, 5,890 injured, 3,490 people missing, and over 125,000 buildings damaged or destroyed, including three nuclear reactors.
• It has had lasting effects on the population of Japan, as well as the international economy.
• By the end of June 2011, 209 companies in Japan had been forced into bankruptcy by the disaster.
• The earthquake and tsunami have had significant immediate impacts on businesses such as Toyota, Nissan and Honda.  It was estimated that automobile production worldwide could drop by 30%.

Our take:

Reacting to Japan

3)  Jobs Crisis

• Unemployment has remained stubbornly high despite the economic recovery that began after the second quarter of 2009.
• Many see the Jobs Crisis as one of the most important factors leading up to the Presidential election next year.
• One of the biggest factors contributing to the high unemployment rate is the lagging housing sector, specifically residential construction.

Our take:

• • Why aren’t there more jobs?
  • Whither Housing?

2)  Debt Ceiling Debacle

• On May 16^th, 2011, the US debt hit $14.3 trillion, the debt ceiling set in February 2010.
• The Treasury warned that if no resolution was reached by August 2, 2011, the US would default on its loans.
• After a summer of back and forth between Democrats and Republicans in Congress, the two parties finally agreed to lift the debt ceiling and reduce the federal deficit.
• As part of the debt ceiling agreement, Congress put together the Joint Select Committee on Deficit Reduction (aka the “Supercommittee”), with a singular focus to make recommendations for reducing the national debt by $1.5 trillion over the next 10 years.
• On Monday November 21^st, the committee issued a statement that it had failed to reach agreement.

Our take:

• Should we be Worried about the Debt Ceiling? 
• Update on our view of the Debt Ceiling
• Supercommittee Failure = Success?

1)  Europe

• Since several countries use the Euro as their currency, their economies are all linked together.  So this year, when Greece’s economy collapsed (followed by Ireland, Portugal and Spain), it threw the European Union into a mess that it’s still working its way out of.
• Many think it could be the end of the European Union and its common currency, the Euro.
• Several European leaders have been ousted and replaced, including the Prime Ministers of Greece, George Papandreou, Italy, Silvio Berlusconi, Latvia, Ivars Godmanis, Portugal, José Sócrates, and Slovakia, Iveta Radičová.
• In October 2011, several leaders agreed on a package of measures designed to prevent the collapse of European Union member economies.
• These measures have helped keep the Euro stable, and as of mid-November 2011, it was trading even slightly higher against the Euro bloc’s major trading partners than at the beginning of the crisis.

Our take:

Euromess: How will it influence your investments?