Newsletter of Economic and Market Events
Best Investments in 2005
U.S. Total stock market returned 5% in 2005, Stocks and Bonds underperformed and inflation was average. Most gains for the year were earned in May 3.7%, July 3.9% and November 4.0%.
Of the 5 largest sectors in the U.S. Economy: Natural Resources performed best 40%, Real Estate 12%, Health 6.4%, Financial 6%, while Technology -0.3% lost. By size: Mid Cap 9%, Small Cap 14.1% and Micro Cap 14.4% stocks outperformed for the 6th year and Large Cap 13.6%. Gold 19.1% and oil 42.9% had gains with commodity prices (CRB)19.1%.
Global markets rose 13.7% of the World's largest economic regions: Latin America performed best 53.3% followed by Europe 22.7% and Asia 21.8%. Of the World's largest Developed non-U.S. Economies: Japan returned 40.2%, Germany 27%, France 23.4%, Canada 21.9% and Britain 16.7%. In the Emerging markets which returned 39.8%: Russia 82.7% and India 42.3% continue to excel while China fell -7.6%. Hedge fund performance in 2005 was spotty with a wide dispersion of performance (mean 6%).
Those who diversified with MPT did best, a trend which should accelerate – indicative is the Dow Jones: the DJ 30 Industrials returned -0.6%, while the DJ 20 Transportation returned 11% and DJ 15 Utilities 21%. Performance of non-U.S. markets was equally impressive. Returns in 2005 were dampened by increases in borrowing costs (Fed Funds rate) and increases in commodity prices (oil/gasoline, metals etc.) but offset by good corporate earnings, low mortgage rates and a stronger dollar.
Separate yourself and your performance from retail investors by using Modern Portfolio Theory (MPT) and Tactical Portfolio Optimization. Institutional investors have for decades spread their investments across many asset classes seeking higher returns. Underperformance is caused by confining your investments to a few similar asset classes and neglecting risk management.
2005 complete News
FOMC Tightening Cycle - Fed Funds rate increases to 4.25% (13th consecutive increase). Fed Funds rate began the year at 2.5% (Fed Funds was 1% from Jun '03 - Jun '04 and 6.5% from May '00 - Jan '01).
U.S. 10 yr Treasuries end the year at 4.35% - trades 3.80% (Jun '05) lowest since Mar '04 (3.65%) and 3.07% on Jun 16 '03. Greenspan warns that the long U.S. Treasury bond's yield is unusually low - "a conundrum”. Inverted yield curve starts (Dec 27, '05) between 2-year and 10-year U.S. Treasury notes for the first time since Dec '00 as investors shy away from shorter maturities. U.S. Treasuries returned an average of 2.9% in 2005 - compared with 3.5% in 2004 and 2.3% in 2003.
World’s financial stock of the 5 wealthiest: US (35%), the Eurozone (32%), Japan (20%), the UK (8%) and China (5%) - estimated close to $145 trillion. Foreign exchange reserves - Japan holds $847 billion and China $819 billion (foreigners hold $4.2 trillion of $7.9 trillion of U.S. Treasury debt outstanding).
Hedge funds surpass $1 trillion in assets under management - SEC oversight forthcoming.
U.S. GDP in 2005 advanced by 3.2%. GDP expanded 4.4% during 2004, 3.0% during 2003 and 1.9% in 2002.
Gold ends the year at $517 - futures trade $544 (Dec '05, 24½ year high) up from $440 at the start of the year. Silver futures trade above $9.30 (18 year high). Platinum futures trade above $1,025 for first time in 25 years. Copper futures trade above $2.20 /lbs. an all-time record high.
Oil ends the year at $60 - trades $55 (Nov '05) down from $70.85 (Aug '05). Oil reaches an all-time record, a 600% rally in 6½ years, up from $10 (Dec '98). Oil started the year at $42.
Dollar ends the year at $1.18 to the Euro - trades $1.16 (Nov '05), strongest in 2 years - rallying from an all time low of $1.36 (Jan '05).
Reuters-CRB (Commodity Research Bureau) Index trades a (non-adjusted) all-time high of $351 (Dec '05).
Hurricanes Katrina, Wilma & Rita ravage Gulf Coast residents from Texas to Florida - taking over 2,140 lives, displacing 2 million Gulf Coast residents, costing possibly $250 billion and years of rebuilding.
National home prices stall. U.S. bank regulators issue new tighter guidelines on mortgage loans ($11 trillion outstanding).
Japan, world's second largest Developed economy, Prime Minister Junichiro Koizumi wins landslide relection and a popular mandate to push through market reforms - Japan Post to be separated and privatised.
Germany, world's third largest Developed economy, Christian Conservative Angela Merkel (Iron Frau) defeats 7 year incumbent Social Democrat Chancellor Gerhard Schroeder to become Germany's first female Chancellor.
European Union agrees on 7 year budget (2007-13, €862.4 billion
Euros). Tony Blair negociates to reduce the U.K.'s EU budget rebate by €10.5 Billion Euros - though the EU constitution was rejected for now.
China decouples the Yuan from the Dollar - pegging instead to a basket of international currencies.
Pope John Paul II (Karol Wojtyla, 1978-05 the first non-Italian in 455 years) is mourned by 5 million people visiting Rome including dignataries. Cardinal Joseph Ratzinger (German) becomes Pope Benedict XVI.
Chief Justice William Rehnquist dies at 80; 16th in U.S. Supreme Court history 1972-2005. John Roberts is confirmed as the 17th Supreme Court Chief Justice, the youngest Chief Justice in over 200 years.
London terrorist bombings on 7/7 kills 52 on subways and one bus - prompting new British laws.
Iraqi people vote and adopt their first democratic constitution and first regional parlimentary General elections - the Council of Representatives, a 275-member body, will shape Iraq's future government.
Kashmir earthquake (October 8) kills over 85,000 and leaves over 3.5 million Pakastanis homeless.
Lance Armstrong wins Tour de France for his 7th consecutive victory (1999-2005).
Chicago White Sox win their first World Series title since 1917.
Month of December 2005
Dow: 10,717
Dow month: -0.81%%, 6 mo: 4.31%, ytd: -0.61%
S&P 500: 1,248
S&P 500 month: -0.08%, 6 mo: 4.79%, ytd: 3.06%
NASDAQ: 2,205
NASDAQ month: -1.21%, 6 mo: 7.25%, ytd: 1.24%
FOMC Tightening Cycle - Dec 13 - Fed Funds rate increases to 4.25% (13th consecutive increase).
Reuters-CRB Index of 17 commodities trades a (non-adjusted) all-time high above $351 (Nov '80 high, $337.60). Gold futures trade $544 (a 24.5 year high) breaking the March 1981 high of $540 as gold fell from its all-time peak of $850 reached in January 1980.
Bank regulators (Federal Reserve, Comptroller of the Currency, Federal Deposit Insurance Corporation, Office of Thrift Supervision and the National Credit Union Administration) issue new guidelines on mortgage loans ($11 trillion outstanding - stronger risk management by lenders warrant tighter standards on unconventional mortgages. Interest-only & Payment Option ARM's in 2001 made up 4% of loans they have risen to over 40% in 2005.
World Trade Organization (WTO) 149 members (DOHA) approved a ministerial declaration in which the European Union sets an end date (2013) for farm export subsidies - help to the world's poorest developing countries.
Iraqi people vote in first regional parliamentary General elections - Dec 15 - the Council of Representatives, a 275-member body, will shape Iraq's future democratic government.
European Central Bank (President Jean-Claude Trichet and the 12-nation ECB currency policy makers) - Dec 1 - raised rates from 2% to 2.25%. The 2% point gap (2% Euro vs. 4% U.S. Dollar) had been the widest since September 2000. The ECB has managed the Eurozone's (311 Milion Europeans) Monetary policy since the Euro's launch in 1999. Interest rates had been at 2% (since June '03), when the ECB cut rates from 2.5% to 2%. The DJ Euro Stoxx 50 trades at a 3.5 year high.
Month of November 2005
Dow: 10,805
Dow month: 3.50%, 6 mo: 3.23%, ytd: 0.20%
S&P 500: 1,249
S&P 500 month: 3.48%, 6 mo: 4.87%, ytd: 3.14%
NASDAQ: 2,232
NASDAQ month: 5.28%, 6 mo: 7.93%, ytd: 2.48%
Oil trades $55 down from $70.85, a 21% fall since Aug '05.
Dollar trades $1.16, strongest in 2 years - rallying from an all time low of $1.36 (15% appreciation since Jan '05) purchases a Euro.
Bank of America merges with MBNA for $35.8 billion.
Canada, U.S.'s largest trade partner, government of Prime Minister Paul Martin, Liberal Party, fell Nov. 28 when opposition parties united to topple Martin. Canada with 33 million people share a $1/2 Trillion (NAFTA) trade with the U.S. which accounts for a third of Canada's economy (85% of Canadian exports). TSX Composite Index rallies from 5,678 (Oct 10, '02) to 11,118 (Sep 28, '05) over 95% rally in 3 years (283 pts shy of the Sep 5 '00 high of 11,401).
2005 Hurricane season ($47.5 billion in insured losses and over $200 billion in U.S. government outlays) with 27 named storms (14 became hurricanes) exceeds 1933 (22) for the most storms since record keeping began 154 years ago. The Galveston Hurricane of 1900 remains the deadliest U.S. natural disaster - estimated loss of life was between 6,000 to 12,000. Hurricane Katrina in August, Hurricane Andrew (Florida in 1992) and the Okeechobee Hurricane (Florida in 1928) make up the top four most destructive Hurricanes in U.S. history.
Month of October 2005
Dow: 10,440
Dow month: -1.21%, 6 mo: 2.43%, ytd: -3.18%
S&P 500: 1,207
S&P 500 month: -1.71%, 6 mo: 4.41%, ytd: -0.33%
NASDAQ: 2,120
NASDAQ month: -1.44%, 6 mo: 10.36%, ytd: -2.66%
FOMC Tightening Cycle - Nov 1 - Fed Funds rate increases to 4% (12th consecutive increase).
Hurricane Wilma recorded as most intense (lowest barometric pressure, Rita was the 4th & Katrina the 6th recorded in U.S. history) leaving 6 million Floridians without electricity.
China's first televised manned space launch of two astronauts. It is only the third country to launch a human into orbit on its own, after Russia and the United States. The mission lasted five days; the 2003 "secret" flight, which carried one astronaut lasted just 21.5 hours.
Iraqi people vote and adopt first democratic constitution in their country's history.
Kashmir earthquake strikes on October 8 - registering 7.6 it killed between 85,000 - 95,000 and left over 3.5 million Pakistanis homeless for the harsh winter.
Delphi files for bankruptcy, the world's biggest auto-parts supplier, spun off from General Motors in 1999. About half of Delphi's business comes from GM.
Chicago White Sox win their first World Series title since 1917 (when "Shoeless" Joe Jackson and the "Black Sox" threw the 1919 Series against Cincinnati), beating the Los Angeles Angels and then the Houston Astros in 8 straight games.
Earnings season for 3Q - the growth rate for the S&P 500 index was 16.0%. The sectors expecting the weakest growth are materials (-5%) and consumer discretionary (1%). The 3Q05 will mark the 9th consecutive quarter of double-digit earnings growth for the S&P 500 index. There have been only 3 other instances of at least 9 consecutive quarters of double-digit earnings growth: 2Q72 - 3Q74, 2Q87 - 2Q89, and 4Q92 - 4Q95.
Month of September 2005
Dow: 10,568
Dow month: 0.83%, 6 mo: 0.62%, ytd: -1.99%
S&P 500: 1,228
S&P 500 month: 1.99%, 6 mo: 4.07%, ytd: 1.40%
NASDAQ: 2,151
NASDAQ month: 1.27%, 6 mo: 7.60%, ytd: -1.24%
FOMC Tightening Cycle - Sep 20 - Fed Funds rate increases to 3.75% (11th consecutive increase).
Hurricane Rita strikes along the Texas-Louisiana border on Sep 24. Over 2.8 million residents evacuate the 500 mile coastal area (largest U.S. evacuation ever), damages estimated between $10-20 billion.
Chief Justice William Rehnquist dies at 80; 16th in U.S. Supreme Court history 1972-2005. John Roberts is confirmed as 17th Supreme Court Chief Justice. At 50 years old Roberts is the youngest Chief Justice in over 200 years.
United Nations celebrates its 60th Anniversary founded in 1945 by the Allies of World War II: United States, Great Britain, Russia, China & France as a forum for all Nations to engage in peaceful resolutions.
Japan, world's second largest Developed economy, Prime Minister Junichiro Koizumi wins landslide reelection and a popular mandate to push through market reforms. Notably, privatizing Japan Post (Koizumi was Minister of Posts and Telecommunications from 1992-95) into separate businesses for mail delivery, banking services and insurance. Japan Post with 400,000 employees, runs 24,700 post offices and is the nation's largest employer. With $3.3 trillion in assets it is also the world's largest financial institution.
Nikkei 225 trades over 13,617, over a 79% rally in 2.5 years. Japan's Nikkei 225 passed 10,000 for the first time on Jan 10, 1984, trading up to within 43 points of 40,000 on Dec 29, 1989 (325% rally, 6 yrs), before falling to 7,603 on April 28, 2003 (80% fall, a 20 yr low). The Bank of Japan has held borrowing costs near 0% since 2001 in an effort to combat over 7 years of deflation.
Germany, world's third largest Developed economy, Christian Conservative Angela Merkel (Iron Frau) defeats 7 year incumbent Social Democrat Chancellor Gerhard Schroeder - Angela Merkel becomes the first female German Chancellor. DAX 30 rallies 21% in past 5 months anticipating change in leadership. The DAX 30 has rallied from 2,188 (8 yr low on March 12, 2003) to over 5,004 (September 7, 2005) 128% rise in 2.5 years. Germany still digesting unemployed from former East Germany (over $1 Trillion spent on German reunification, 15th Anniversary on Oct 3, 2005) has the world's 2nd largest government deficit behind the U.S. and unemployment over 12% (18% in former East Germany).
Month of August 2005
Dow: 10,481
Dow month: -1.49%, 6 mo: -2.65%, ytd: -2.80%
S&P 500: 1,204
S&P 500 month: -2.43%, 6 mo: 0.08%, ytd: -0.58%
NASDAQ: 2,124
NASDAQ month: -2.75%, 6 mo: 3.56%, ytd: -2.48%
FOMC Tightening Cycle - Aug 9 - Fed Funds rate increases to 3.50% (10th consecutive increase). Federal Reserve announces that it will begin reissueing the 30 yr Treasury bond beginning on February 9, 2006 (discontinued on Feb 18, 2002).
Oil trades above $70 to $70.85 for the first time a 600% rally in 6.5 years - up from $10 in Dec '98.
Energy Bill signed into law - pressured by rising consumer gasoline prices.
Transportation Bill ($286 billion) signed into law.
Conoco Phillips buys Burlington Resources for $35.6 billion.
National Home prices stall - pressured by rising mortgage rates and rising home prices.
China takes the first step toward decoupling the Yuan from the Dollar. The Yuan will no longer be pegged directly to the U.S. dollar but to a basket of currencies. China holds the second largest inventory of U.S. Treasuries after Japan. China's $8.8 trillion Emerging economy compares to the U.S.'s $13 trillion economy.
CNOOC (Chinese "government") withdraws bid for UNOCAL after Congress strongly opposes acquisition as a threat to U.S. national security interests (purchase of U.S. energy resources). China ($8.8 trillion) and India ($3.6 trillion) emerging economies have the greatest increases in energy consumption for nearly half of the world's population.
Hurricane Katrina hits the Gulf Coast on Aug 29 (just East of New Orleans) ravaging Louisiana, Mississippi and Alabama. Flooding by levee breaks of over 215,000 properties in New Orleans initiates the largest domestic airlift & dislocation of Americans (2 million, since the Civil War). Damage covers a 90,000 sq. mile area - an area greater than the entire states of New York (47,223), Florida (53,997), Michigan (56,809), or Utah (82,168). The widest natural disaster in U.S. history takes the lives of over 1,800, over 500,000 jobs are lost, it will cost taxpayers $150 billion and the Gulf Coast years to rebuild. 115 Nations & 12 International Organizations pledge assistance to Katrina recovery. Over $1.3 billion of donations flow into non-government recovery organizations, the largest charitable collections ever.
Month of July 2005
Dow: 10,640
Dow month: 3.56%, 6 mo: 1.44%, ytd: -1.33%
S&P 500: 1,234
S&P 500 month: 3.61%, 6 mo: 4.49%, ytd: 1.90%
NASDAQ: 2,184
NASDAQ month: 6.23%, 6 mo: 5.92%, ytd: 0.28%
U.S. unemployment rate dropped to 5.0%, its lowest level since August 2001, before 9/11.
Dollar trades below $1.19 rallying from an all time low of $1.36 (Jan '05) to the Euro.
Lance Armstrong wins Tour de France for 7th consecutive victory (1999-2005); after being diagnosed with cancer in 1996 and given a 50% chance to live. No other cyclist had won more than five: Jacques Anquetil, Eddie Mercks (Belgium), Bernard Hinault, Miguel Indurain (Spain) - Greg Lemond was the first and only other American, he won 3 times.
London terrorist bombings on 7/7 kills 52 on subways and one bus - the deadliest attack in Britain since World War II. Prime Minister Tony Blair introduces new laws in Parliament curbing "hate mongering, inciting terrorism".
Earnings season for 2Q - the growth rate for the S&P 500 index was 11.7%, estimates started at 8.8%. The 2Q05 will mark the 8th consecutive quarter of double-digit earnings growth for the S&P 500 index. There have been only 3 other instances of at least 8 consecutive quarters of double-digit earnings growth.
Month of June 2005
Dow: 10,274
Dow month: -1.84%, 6 mo: -4.72%, ytd: -4.72%
S&P 500: 1,191
S&P 500 month: 0.00%, 6 mo: -1.65%, ytd: -1.65%
NASDAQ: 2,056
NASDAQ month: -0.58%, 6 mo: -5.60%, ytd: -5.60%
FOMC Tightening Cycle - June 30 - Fed Funds rate increases to 3.25% (9th consecutive increase).
Oil trades above $60 for the first time a 500% rally in little over 6 years.
10 yr U.S. Treasury trades trades 3.80% (Jun '05) lowest since Mar '04 (3.65%) and 3.07% on Jun 16 '03 - Federal Reserve began it's current tightening cycle from 1% in June of '04.
London wins the 2012 Olympics which will follow Beijing in 2008.
European Union constitution rejected by France.
Greenspan warns that the long U.S. Treasury bond yield is unusually low "a conundrum". A voracious appetite for our long bonds by Asian ecomomies (they are buying our bonds as we buy their goods and services), Non-U.S. global savings and U.S. real estate speculation (securitization of mortgages).
Month of May 2005
Dow: 10,467
Dow month: 2.70%, ytd: -2.93%, 6 mo: 0.37%
S&P 500: 1,191
S&P 500 month: 3.03%, ytd: -1.65%, 6 mo: 1.53%
NASDAQ: 2,068
NASDAQ month: 7.65%, ytd: -5.05%, 6 mo: -1.34
FOMC Tightening Cycle - May 3 - Fed Funds rate increases to 3% (8th consecutive increase).
GM and Ford - Two of the Big Three U.S. automakers - debt is downgraded to "junk" status by S&P.
Month of April 2005
Dow: 10,192
Dow month: -2.96%, ytd: -5.48%, 6 mo: 1.65%
S&P 500: 1,156
S&P 500 month: -2.03%, ytd: -4.54%, 6 mo: 2.30%
NASDAQ: 1,921
NASDAQ month: -3.90%, ytd: -11.80%, 6 mo: -2.68
Bankruptcy Bill signed into law.
Pope John Paul II (Karol Wojtyla, 1978-05 the first non-Italian in 455 years) had visited 129 countries, delivering more than 2,000 public addresses and influencing the collapse of communism in Eastern Europe - 5 million people visited Rome along with 4 kings, 5 queens, at least 70 presidents and prime ministers and more than 14 leaders of other religions to mourn the pope, who died at 84. Cardinal Joseph Ratzinger (German) oversaw the ceremonies later to become Pope Benedict XVI - the 265th reigning pope.
Earnings season for 1Q - the growth rate for the S&P 500 index was 13.9%. Consumer discretion sector is expected to have the sharpest decline in earnings (-7%).
Month of March 2005
Dow: 10,503
Dow month: -2.44%, ytd: -2.60%, 6 mo: 4.20%
S&P 500: 1,180
S&P 500 month: -1.91%, ytd: -2.56%, 6 mo: 5.92%
NASDAQ: 1,999
NASDAQ month: -2.54%, ytd: -8.22%, 6 mo: 5.43%
FOMC Tightening Cycle - March 22 - Fed Funds rate increases to 2.75% (7th consecutive increase). To remove policy accommodation at a pace that "...is likely to be measured...pressures on inflation have picked up in recent months and pricing power is more evident...with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal."
P&G buys Gillette for $57.2 billion.
U.S. unemployment rate unexpectedly rose to 5.4% from 5.2%.
U.S. 10 yr Treasury trades 4.69% - the highest yield in 10 months (4.90%). The 10 yr U.S. Treasury had their worst losses, 34%, in over 20 years when yields rose from 3.65% (Mar 17, '04) to 4.90% (May 14, '04) in just 2 months - preceding the Fed's current tightening cycle from 1%.
Month of February 2005
Dow: 10,766
Dow month: 2.64%, ytd: -0.16%, 6 mo: 5.83%
S&P 500: 1,203
S&P 500 month: 1.86%, ytd: -0.66%, 6 mo: 8.97%
NASDAQ: 2,051
NASDAQ month: -0.53%, ytd: -5.83%, 6 mo: 11.59%
FOMC Tightening Cycle - February 2 - Fed Funds rate increases to 2.5% (6th consecutive increase). Fed retained its reference to a "measured" pace of adjusting the funds rate higher.
Oil trades above $50 for the first time a 400% rally in less than 6 years.
Greenspan warns about the unusually flat U.S. bond yield curve calling it "a conundrum". The FOMC was forced in 2003 to drive Fed funds rate down to 42 year lows (1%) to allay the consequences of the "possibility" of deflation.
Q404 GDP was revised higher to a 3.8% rate from the 3.1% earlier reported. In 2004 GDP advanced 4.4%, its best performance since 1999, when GDP rose 4.5%. GDP expanded 3.0% during 2003 and 1.9% in 2002.
Month of January 2005
Dow: 10,489
Dow month: -2.73%, ytd: -2.73%, 6 mo: 3.45%
S&P 500: 1,181
S&P 500 month: -2.48%, ytd: -2.48%, 6 mo: 7.27%
NASDAQ: 2,062
NASDAQ month: -5.33%, ytd: -5.33%, 6 mo: 9.27%
Fed Funds rate at 2.5% after 1 year at 1% (Fed Funds was 6.5% from May 16, '00 - Jan 3, '01).
Gold starts the year at $440 up from $250 in April of 2001.
Oil starts the year at $42. Oil started last year at $27 then traded just below $50 at Halloween. In December 1998 oil was $10.
Dollar begins the year at an all-time low of $1.36 to the Euro. Dollar has fallen from $0.8228 (October 26, 2000)
to $1.36 in the past 4 years (a whopping 65% decline) to the Euro. The Euro began trading on Jan 1, 1999 between European banks at $1.17.
According to Thomson Financial Q404 growth rate for the S&P 500 index came in at 20.4%. Last year Q403 earnings growth was 28.3%, which was the highest quarterly growth rate recorded in the last 10 years. With earnings finishing at or above 20%, it will mark only the 8th time this has happened since 1950. The last year the annual growth rate for the index was 20% or greater was 1993 (23.3%).
Best Investments in 2004
U.S. Total stock market returned 12% in 2004, Stocks outperformed, Bonds underperformed and inflation was average. Most gains for the year were earned in November 4.5% and December 3.5%.
Of the 5 largest sectors in the U.S. Economy: Real Estate 23.8% and Natural Resources 22.7% performed best, Financial 7%, Technology 6% while Health 1.3%. By size: Small Cap value stocks 21.6% (fifth year of returns in excess of 20%), Mid & Small Value Cap stocks have appreciated 125% in the past 5 years. Gold 4.3% and oil 31.3% had gains with commodity prices (CRB) 16.6%.
Global markets rose 12.4% of the World's largest economic regions: Latin America performed best 38.9% followed by Europe 17.6% and Asia 15.1%. Of the World's largest Developed non-U.S. Economies: Japan returned 7.6%, Germany 7.3%, Britain 7.5%, France 7.4% and Canada 12.5%. In the Emerging markets which returned 13.6%: Russia 8.3% and India 13.1 continue to excel while China fell -15.4%. Hedge fund performance 8% was disappointing (compared to '00-'03), generally underperforming the Stock market. U.S. Treasury bills yielded an (inflation adjusted) loss of 2% due to historic low Fed funds rate of 1%.
Those who diversified with MPT did best, a trend which should accelerate. Despite a rally from March ‘03 through the end of 2004 Large Growth Technology stocks still lag (worth 2/5 of their values from their peak). The NASDAQ Composite Average fell from 5,132.52 (its Mar 10, 2000 peak) to 1,253 (its Mar 12, 2003 low) a 77% decline. The S&P 500 is still down about 21% from its peak of 1552.87 on Mar 24, 2000.
Separate yourself and your performance from retail investors by using Modern Portfolio Theory (MPT) and Tactical Portfolio Optimization. Institutional investors have for decades spread their investments across many asset classes seeking higher returns. Underperformance is caused by confining your investments to a few similar asset classes and neglecting risk management.
News in 2004
FOMC Tightening Cycle - Fed Funds rate increases 5 consecutive times to 2.5% from 1% (from Jun 25, '03 - Jun 30, '04 rate was 1%, in 2000 Fed Funds rate was 6.5%).
U.S. 10 yr Treasuries end the year at 4.25% - U.S. Treasuries returned an average of 3.5% in 2004 up from 2.3% in 2003.
Dollar ends the year at an all-time low of $1.36 falling from $0.8228 (October 26, 2000) to $1.36 in the past 4 years (a 65% decline) to the Euro. The Euro began trading on Jan 1, 1999 between European banks at $1.17.
Oil ends the year at $42. Oil started the year at $27 then traded just below $50 at Halloween. In December 1998 oil was $10.
Gold ends the year at $440 with highs of $470 and lows of $385 (up from $250 in April of 2001).
Prescription Drug Bill, Medicare (Part D) signed into Law.
Sumatra-Andaman earthquake occurs on Dec 26. The 9.2 earthquake lasted nearly 10 minutes causing the entire planet to vibrate (the total fault slip measured nearly 50 feet over about an hour). The subsequent Tsunami (may have reached as high as 100 feet) and killed between an estimated 223,000 - 283,000 making it one of the worst natural disaster in recorded human history. Donor nation pledges exceeded $13.6 billion.
President George Bush defeats John Kerry in 2004 Elections for 2nd term.
U.S. and Coalition forces had successes and failures in Iraq after toppling Saddam Hussein's Ba'ath Party government. More than 200,000 people are estimated killed/"disappeared" during Saddam's rule, and more than 1 million were killed during the Iran-Iraq War (1980-1988), the first Persian Gulf War (1991) and the current Operation Iraqi Freedom (2003-).
9/11 Commission hearings undertaken and reports released.
Madrid terrorist train blasts kill 190 people, which consequently effects Spanish Elections.
Chechen militants seize school in Russia more than 330 children and adults killed.
China undergoes first peaceful leadership transition since the 1949 Communist revolution.
Afghanistan holds its first democratic Presidential election since the removal of the Taliban. Operation Enduring Freedom returned rule to the Afghani people in 2002.
North Korea and Iran are pressured by U.N. member states on their nuclear programs.
European Union admits 10 new members, mostly from the former Soviet bloc - Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia.
Sudan's Darfur region ravaged by violence - a humanitarian crisis claim tens of thousands of lives.
Hurricanes (4) hit Florida: 117 killed, damage tops $22 billion.
President Ronald Reagan dies at 93; 40th President of the United States from 1980-88. Reagan abandoned detente instead indentifying the Soviet Union as the "Evil Empire" and demanding that East Germany "tear down" the Berlin Wall. Reagan, Margaret Thatcher, Pope John Paul II, Solidarnosc and the power of the American economy forced Mikhail Gorbachev in 1986 to introduce glasnost ("openness") and perestroika ("restructuring") effectively ending the Nuclear Arms Race and the Cold War. Russian Economic and Political reforms followed in 1988 dismantling the totalitarian state (established in 1917 by Lenin and Stalin) and freeing Eastern European states from Soviet control for the first time since 1945. Reagan introduced supply-side economics lifting the U.S. economy out of stagflation, creating 16.7 million jobs and the greatest economic recovery since post-WWII.
Athens defies skeptics and hosts a successful 2004 Summer Olympics. American swimmers stand out - Jenny Thompson becomes the most decorated swimmer in Olympic history with 12, Michael Phelps won 8 medals a record for a non-boycotted Olympics Games and Natalie Coughlin won 5 medals tying her for the most medals by a U.S. woman in any sport in a single Summer Olympics.
Boston Red Sox win their first World Series title since 1918, beating the New York Yankees (ending the "Curse of the Bambino" the infamous trade of Babe Ruth to the New York Yankees following the 1919 season) and then the St. Louis Cardinals in 8 straight games.
NASA's 2 rovers reach Mars and transmit images and data. Hubble Space Telescope estimates the age of the universe at 13.7 billion years.