Positive Economic Data – Preliminary 4Q US gross domestic product (GDP) report, showing growths of 2.8% in the last quarter of 2011. This pace represents the fastest growth since the second quarter of 2010, but the details within the report were somewhat mixed. On the positive side (private consumption and private fixed investment were both up). In contrast (growth came as a result of inventory accumulation, which tends to be quite cyclical). On balance, we believe the report paints a picture of modest, if unspectacular, growth in the United States.

Unemployment Picture Continues Improving – Doll’s expectation is that jobs growth is likely to average around 150,000 per month, adding up to 1.8 million new jobs for all of 2012. That should be enough to continue to bring the unemployment rate down, but Doll is not expecting it to fall below 8.0% by the end of 2012.

Big Picture – Improved economy since the “double dip” talk of the middle of 2011 (caused by Japan tsunami, US Debt ceiling debate, European Debt woes. Looking ahead, Doll is calling for economic growth in the neighborhood of between 2.0% and 2.5% in 2012.

[From a previous blog post of ours on 9/27/11, we know there is no direct relationship with GDP growth & stock market returns.  It’s corporate earnings, and “unanticipated” changes in growth rates that are highly correlated with equity returns, which bodes well for 2012. Click HERE for full Post]

Fed: No Changes for Now – The Federal Reserve announced that the central bank would maintain a highly accommodative monetary stance for the foreseeable future. In particular, the Fed indicated that it plans to keep rates at their current near-zero level through at least late 2014, a longer timeframe than it had previously indicated.

Background for Stocks Remains Constructive – From a technical perspective, the market backdrop continues to be a strong one. All of the major indices are trading at above their 200-day moving averages and the advance/decline lines are trending quite strong. Additionally, the amount of cash on the sidelines remains extremely high.

Although economic and market data is looking better than it did several months ago, it is important to remember that significant downside risks remain. The European debt crisis still has the potential to spiral out of control and investors need to keep an eye on potentially rising oil and gasoline prices. Additionally, should Congress fail to extend the payroll tax cut beyond February, we could see a consumer spending pullback.

On balance, however, Doll believes the positives outweigh the negatives. Central banks remain highly committed to promoting better economic growth and while we are not expecting to see a clear resolution for the European debt crisis, Doll expects it to remain reasonably well contained. Given this backdrop, Doll thinks it is likely that modest levels of economic growth should continue, which should help pave the way for stock asset outperformance. We tend to agree with most of his points. The most important thing is for your Personal Plan to remain on track. You can check that for FREE with your own FREE Roadmap (click HERE)

In his weekly note, Raymond James' Jeff Saut offers up a great batch of history for those who think the US is facing some crisis of historic proportions.

He starts off with this quote, which sounds very familiar…

“We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterized the century is over; that the rapid improvement in the standard of life is now going to slow down; that a decline in prosperity is more likely than an improvement in the decade which lies ahead.”

It turns out, that was from John Maynard Keynes, and it was said in 1930.

Then Saut passes a long a message from a London-based investor, pondering the last time the US was at risk of a double-dip recession.

“In 1994… If my memory is correct, the term ‘double-dip’ was coined at this time as the U.S. was still suffering the hangover from the Savings & Loan crisis that had exacerbated the 1991 recession. Despite this background of doom and gloom the S&P 500 advanced by 34% in 1995.”

Lest you think there was much less to worry about back then, here are some of the headlines:

Nov 1994 – Norwegian voters decide not to join the European Union.

Dec 1994 – Boris Yeltsin orders troops into Chechnya.

Dec 1994 – Mexican Tequila Crisis – ‘unleashing the Tequila effect on global financial markets.’ The U.S. agrees to a bail-out.

Jan 1995 – Kobe Earthquake in Japan. Feb 1995 – Barings collapses due to speculative trading by Nick Leeson.

Apr 1995 – Oklahoma City bombing kills 168 people.

Jun 1995 – Iraq disarmament crisis. . . .

So there was plenty to worry about.  Saut's bottom line for the week?

This is not the time to be bearish. The turtle makes no progress until it sticks its neck out; Saut has been sticking my neck out since Thanksgiving, believing the Santa rally was beginning. More and more positive news comes out each day – better than expected Chinese GDP growth (+8.9% vs. +8.7%E), a worldwide interest rate easing cycle, the largest jump in German investor confidence ever, a decent Spanish bond auction, and hints of another round of quantitative easing.

The result has the S&P 500 moving higher – Saut thinks it is a mistake to become too bearish . . .A different perspective I thought you’d find of interest.

I’ll summarize below:

A market full of "sound and fury, signifying nothing" – When all was said and done, the S&P 500 and the Dow did eke out gains for the year. Yet, investors may not feel that way as most asset classes around the globe ended the year negative (the US was actually the “best” performing equity market).

Lower inflation, higher real growth – Given the improving outlook for inflation in the first half of this year, and a lower deflator, expect real GDP to have an upward bias.

Under-exposed investors will likely climb "wall of worry" – As we head into 2012, Liz Ann thinks the market "wants" to go up, and the first trading week certainly supports that view. Hedge funds are under-exposed to stocks, according to ISI's survey, with net-long exposure only slightly greater than it was back at the March 2009 market low. Individual investors' exposure to stocks also remains low relative to historical norms, with the bias in terms of fund flows having been heavily fixed-income-weighted over the past five years or so. And sentiment conditions remain supportive, with the "wall of worry" very much intact. Corporate profits are set to continue growing, albeit at a slower pace, driven by contained labor costs and low interest rates.

Expect the unexpected – Although the eurozone crisis may keep volatility elevated short-term, 2012 is looking like a better year. In Liz Ann’s view, this mirrors more the 1998 currency crises emanating from the Thai baht devaluation, Asian market collapses, and economic carnage throughout Southeast Asia and Russia. Unless there's a Lehman moment in Europe, she thinks the US economy will not be infected significantly from Europe's economic malaise

Liz Ann Sonders believes markets are likely to remain volatile in the near-term, but she thinks 2012 could be a year of easing volatility, lower correlations and better returns for stock investors.

A great way to start you year is to see if you’re retirement is "On Track."  We have a FREE tool you can use to start your analysis / review (Click HERE for your FREE on-line Road Map).

Number 1 Money Generator – You!

Your own earning power is the most valuable asset you'll ever own, and it can't be wiped out in a market crash. Keep your earning power growing through continuous education, training and personal development.

Borrow sparingly

Use credit only to purchase things of lasting value: a home, education, maybe a car. Even better, take advantage of the credit card company's free 30-day loan by charging responsibly and paying off the bill in full every month. Very few people get into financial trouble when they have little / no debt (sounds like Dave Ramsey commercial)

Pay yourself first

This year, try reversing the bill-paying process. Make the first check you write each month a deposit to your investment account. Then pay all your regular monthly bills, finishing up with the credit card bill. If you're having trouble paying that last bill, trim your discretionary spending — but keep paying yourself first.

Don't go for the home run

Home run hitters strike out a lot too, and their lifetime batting average — average annual total return — suffers accordingly. So don't try to time markets, because no one does it consistently well. Use dollar-cost averaging to invest regularly in markets good, bad and lackluster. Have the patience to wait out the occasional (and inevitable) bear markets.

Diversify, diversify, diversify

Successful investors have always known that any one class of assets — stocks, real estate, bonds, cash — will have its day in the dirt and its day in the sun. That's why you've got to own all of them, in a mix that's right for your age, income, family responsibilities and tolerance for risk.

Protect yourself and your loved ones

Prepare for the “what if’s” in life. Make sure you have enough insurance against life's big risks — serious illness, disability and early death. Most people are woefully underinsured.

Live simply today for a more comfortable tomorrow

Delayed gratification is no fun, but it's the only way I know to fund your long-term goals — college for your kids or grandkids, that vacation home you've always wanted, early retirement. Take a close look at your current lifestyle, and if you see a lot of spending that is dispensable, consider it found money for the bigger dreams in your life.

Here’s a FREE On-line tool you may find helpful, when it comes to the secret of your success.

On-Line Bill Pay

Finally, this is the year! Start paying a few bills on-line the first month, and then add a few more each additional month.  Before you know it you’ll be completely on-line & freeing up that bill paying time for more enjoyable things. 

Consolidate your accounts

Too many accounts scattered among multiple providers creates a twofold problem: It’s harder to track your investments, and you may be paying more in fees. Consolidating your investment accounts, makes managing your financial affairs that much easier.

IRAs: all for one and one for all

The IRS looks at all your traditional IRAs as one, & so should you.  If you have more than one traditional IRA, consider consolidating them into a single account. And if you have an old 401(k) still sitting with a former employer, consider rolling it over into your traditional. Again, you’ll find it easier to keep track of your investments and you might even end up paying less in fees overall.

Filter the noise

Unfortunately, access to lots of financial information doesn’t always lead to wise decision-making – it may lead to decision overload!

Focusing on the long term becomes easier when we learn to ignore this sort of arm-waving. Be discerning—seek sources of information you find truly informative, reliable and worthy of your attention, then tune out the clatter.

When, if ever, can I Retire

We spend more time planning vacations than we do planning our retirement. Here’s a FREE On-line tool that will help you start to answer that question.  It will also help you to prioritize your goals (retirement, college funding) & find out if you are on track. It’s scary, I know, but you need to start somewhere – You can’t Predict the Future, but you can Plan for it.

The KISS Principle (Keep it simple, sweetheart)

Wall Street is forever coming out with all kinds of fancy financial products. Do you really need to concern yourself with the latest products? Perhaps not, especially if you believe that the simpler you can structure your financial life the better.

Of course, “simpler” should not be confused with “simplistic.” Simplification doesn’t mean you ignore the sound principles of investing, and keeping things simple should never lead to neglect.

Why not choose a diversified asset allocation that fits your personality, goals and objectives, implement it as simply and efficiently as you can, resolve to revisit your plan periodically to keep it on track, and then just relax? It might be nice to just go on vacation once in a while without having to worry about how your portfolio’s doing at any given moment in time. Wouldn’t it?

We know the negatives on the market – US Political environment and the European debt crisis -> which may lead to slow growth in the US & Europe. However, as we know from a previous blog post, there is no direct correlation between stock market returns and GDP growth. The stock market is much more correlated to corporate earnings. There is a growing amount of evidence that behind the headlines of the US & Europe that corporations & consumers are doing well.

A recent US Today article pointed out that despite stock market’s roller coaster ride and slow job recovery, companies’ profits are on a tear. Corporations set another recorded for quarterly earnings in the 3^rd quarter, topping the previous record set in the 2^nd quarter.

While growth expectations may be subsiding for 2012, investors are still expecting record profits. Even if profit next year increases by 8.7%, that's still going to represent extremely strong, and record, corporate profits.

The key point – US Corporations are making money, have less debt & more cash than any other time in history.  That could lead to improvements in stock returns. The next key to look for is “Merger Mondays” – companies buying other companies, showing even more confidence in their business. (click HERE for full article)

Yes, it’s true we’ve had a volatile couple of months in the equity markets. BUT THE S&P 500 WAS UP 10.9% in October; the best one-month stock rally since 1974!!! 

Retail investors infamously buy high & sell low. According to Morningstar, some of October’s outflows were likely investors reacting to September’s loss.

No one will argue the fact that it’s hard to time the market. Academics say it’s a fool’s game. But still, investors are struggling to maintain their income and are complaining that there is nowhere to achieve returns, yet many just missed out on one of the best performing months for the stock market in years?

Warren Buffett, the “Oracle of Omaha”, said that to succeed at investing all you need is a plan, and stick to it…it’s the “sticking to it” part most people have trouble with.  Don’t “follow the crowd” – do what Buffett suggests & put a plan together & stick to it. If you need help, there are people like me out there that can help you with the “sticking to it” part. You can’t Predict the Future, but you can Plan for it.

Buffett's IBM splurge means he has paid near-record prices for the shares, much like he did on his winning 1988 investment in Coca-Cola Co.  IBM becomes Berkshire's second-biggest holding behind a Coca-Cola. Buffett invested about $1 billion in Coke by the end of 1989 and made purchases of almost $300 million in 1994.

 “When he started to accumulate the Coca-Cola stock it was like, 'Boy, this is very unlike Buffett because of the valuation,'” said David Rolfe, chief investment officer of Berkshire investor Wedgewood Partners Inc. IBM “is a behemoth, compared to even where Coke was back then. But it is certainly a company that can grow.”

Buffett is considered by many to be one of the wisest investors out there. So, the “Oracle of Omaha” is buying IBM stock, which many are interpreting as being bullish on the US Stock Market. “If he thought the possibilities of a recession were on the horizon, then he'd wait to do this?”

 Click HERE to read more

The article sites his reasons for the Financial Crisis of 2008 & what he calls the “Big Lie” to cover the truth up. Here’s the link to the article (HERE), you may need to sign up for the Washington Post, but it’s FREE & has other good resources.

I’ll summarize below, but encourage you to read his full article.

The Big Lie, according to Barry, is that there are many “causes” of the crisis; yet each group claims to be a victim & blame another group. For example, Wall Street blames Congress; Congress blames Wall Street; the protesters blame…well I’m not sure

Some of Barry’s causes of the crisis include:

• Fed Chair Alan Greenspan dropped rates to 1 percent…for too long.
• Low rates meant investors turned to high-yield mortgage-backed securities; yet didn’t understand what they owned or the risks inherent.
• Credit ratings agencies — Moody’s, S&P and Fitch. They had placed an AAA rating on these junk securities, claiming they were as safe as U.S. Treasurys.
• Derivatives were/are exempt from all oversight / reserve requirements. This allowed AIG to write $3 trillion in derivatives while reserving precisely zero dollars against future claims.
• The SEC changed the leverage rules for just five Wall Street banks in 2004. The “Bear Stearns exemption” replaced the 1977 net capitalization rule’s 12-to-1 leverage limit. In its place, it allowed unlimited leverage for Goldman Sachs, Morgan Stanley, Merrill Lynch, Lehman Brothers and Bear Stearns. These banks ramped leverage to 20-, 30-, even 40-to-1. Extreme leverage leaves very little room for error.
• Sub-prime mortgages were dominated by non-bank originators exempt from most regulations (ie. They had weak standards). The Fed could have supervised them, but Greenspan did not.
• Congress radically deregulated the financial sector, encouraged home ownership to those who may not qualify & allowed Wall Street to self-regulate.

Interesting thoughts that’s gone “viral” on the Washington Post – now you can say you’re “in the know”.

• Preserving wealth. In one study of more than 1,400 high–net–worth investors who work with advisors, nearly 90% were quite concerned about losing their wealth. Today, given the market's sometimes severe volatility, investors are anxious about their retirement prospects and intensely focused on preserving their wealth.
• Minimizing taxes. Mitigating income taxes is a concern of more than 90% of investors with a new worth of between $1 million and $3 million. For those in the higher net–worth range, estate and capital gains taxes are also major concerns.
• Wealth protection. A significant number of affluent investors are worried about keeping wealth safe from potential creditors, litigants, and children's spouses and potential ex–spouses, as well as from catastrophic loss. For example, being sued is a key concern of nearly 60% of investors.
• Estate and gift transfer. Ensuring that heirs, parents, children and grandchildren are taken care of with minimal difficulty and cost, in accordance with the investor's wishes, is cited by more than 80% of affluent investors.
• Charitable gifting. Helping to facilitate and increase the effectiveness of their charitable intents is very important to a sizeable percentage of high-net-worth investors.
• High–quality financial advice. During the downturn, however, many affluent investors grew increasingly unhappy with their current advisors. Example: A full 81% of investors with at least $1 million said that they planned to take money away from their current advisor.

Clearly, investors today are competing with a wide range of challenges that can affect every aspect of their lives.  We at Mosaic Wealth Management do what few advisors do – help investors tackle ALL their important Wealth Management issues.