Newsletter of Economic and Market Events
Best Investments in 2006
U.S. Total stock market returned 14% in 2006, Stocks outperformed while Bonds underperformed and inflation was average. Most gains for the year were accumulated in the second half of 2006.
Of the 5 largest sectors in the U.S. Economy: Real Estate performed best 27.5%, Financial 17.8%, Natural Resources 17.2%, Technology 13.4% and Health 6.6%. By size: Large Cap13.6%, Small Cap 14.1% and Micro Cap 14.4% while Mid Cap stocks returned 9%. Gold 22.8% and oil 1.8% had gains with commodity prices (CRB) falling -7.4%.
Global markets rose 22.4% of the World's largest economic regions: Latin America performed best 38.4% followed by Europe 16.7% and Asia 14.5%. Of the World's largest Developed non-U.S. Economies: Germany returned 22%, France 17.5%, Canada 14.5%, Britain 10.7% and Japan 6.9%. In the Emerging markets which returned 52.9%: China 128.7%, Russia 71.3%, India 46.7 and Brazil 43.6% continue to excel. Hedge funds (8,000, controling $1.3 trillion) and Private Equity firms (over $700 million) - returned on average 13% (PE generally outperformed hedge funds).
Those who diversified with MPT did best, a trend which should accelerate – indicative are the returns of non-U.S. markets just mentioned. Returns in 2006 were strong aided by historic corporate earnings, low unemployment and borrowing costs.
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.
2006 complete News
U.S. residential housing market cools from its record unsustainable (price) growth rate - over $1.9 trillion of ARMs will reset at higher interest rates in 2007-08 ($11 trillion mortgage loans outstanding).
FOMC Tightening Cycle - Fed Funds rate increases to 5.25% (17 consecutive increases). Fed Funds rate began the year at 4.25% (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 4.68% - trades 5.24% (Jul 5). U.S. inverted yield curve tests markets worldwide (began, Dec 27 '05 - first time since Feb 24, '00 - Dec 22, '00, 8th time since 1980). U.S. Treasuries returned an average of 3.0% in 2006 - compared with 2.9% in 2005, 3.5% in 2004 and 2.3% in 2003.
U.S. unemployment rate falls to 4.4%.
United States (as a nation) for the first time since 1915 owns less assets oversees than foreigners own of U.S. assets - a trend which is expected to increase. $8.4 trillion of U.S. Treasuries outstanding.
Dollar ends the year at $1.32 to the Euro – falling from $1.18 at the beginning of the year an 11% depreciation.
U.S. GDP in 2006 advanced by 3.3%. GDP advanced by 3.2% in 2005, 4.4% during 2004, 3.0% during 2003 and 1.9% in 2002.
Oil ends the year at $61 - trades $77.03 (7/10) an all-time cash high - up from $10 (Dec '98). Oil started the year at $60.
- Gold ends the year at $636 - traded $732, highest since February 1980, when Gold spent 3 weeks above $700. Platinum traded $1335 and Copper traded $4.03/lbs at all-time cash highs. Silver traded $15.21 - highest since February 1983. Uranium (actually more common than silver) rose
more than 10-fold from $7.10/lb (1/01) to $72/lb.
- Reuters-CRB (Commodity Research Bureau) Index of 17 commodities trades at an all-time high above $409 (Dec '06).
Global mergers and acquisitions exceed $3.55 trillion - a record surpassing the $3.4 trillion in 2000.
World’s financial stock of the 5 wealthiest: US (35%), the Eurozone (32%), Japan (20%), the UK (8%) and China (5%) - estimated at $150 trillion. Foreign exchange reserves - China's reserves surpass $1 trillion eclipsing Japan's $900 billion - foreign buyers hold $4.4 trillion of $8.4 trillion of U.S. Treasury debt.
European Central Bank (ECB) raised interest rates to 3.5% from 2.00% (6th time since Dec '05) for 12 European nations - Slovenia to become the 13th EU member state to introduce the Euro, Jan. 1. Bulgaria and Romania join the European Union, bringing membership to 27 nations.
Bank of Japan raises interest rate to 0.25% up from 0.0% ends over 7 years of deflation fighting.
China increases interest rates in order to cool domestic economy growing at 9-11%. Industrial and Commercial Bank of China (ICBC) launches the world's largest IPO ever - $21.9 billion.
Russia ($1 trillion economy) invited to join the World Trade Organisation (WTO) of 149 members - China joined the WTO in 2001.
Inter-American Development Bank estimates that 12.6 million U.S. Latin American-born immigrants will send home more than $45 billion — of about $460 billion earned in 2006.
U.S. population exceeds 300 million (China, 1.32B and India, 1.10B) 100 million reached in 1915 and 200 million in 1967.
Ben Bernanke succeeds Alan Greenspan as Chairman (retires after 18½ years) of the Federal Reserve.
NYSE, the world's largest stock market, demutualizes and mergers with Archipelago Holdings Inc. (and Pacific Exchange) then NYSE Group reaches deal to acquire Euronext. NASDAQ purchases a 30% interest in the London Stock Exchange.
Medicare (Part D) Prescription Drug benefit over 38 million of Medicare's 43 million beneficiaries enroll in 2006. 77 million Baby Boomers are estimated to be eligible for Medicare by 2031.
SEC and State Attorney Generals investigate the backdating of corporate options at 140+ companies (resulting in 70+ firings/resignations of corporate officials) - the practice, appears to have originated in Silicon Valley (in companies like Sanmina, Novellus & Juniper Networks pre-9/11).
U.N. Security Council adopts resolutions to impose sanctions on North Korea (for a nuclear-bomb test, Oct 9) and Iran (for its nuclear program, Dec 23).
2006 XX Olympic Winter Games Torino, Italy where German, American, Canadian, Austrian, Russian & Norwegian athletes scoop up medals.
Michael Schumacher retires as the world's first billionaire athlete - Formula One driver. Schumacher, 7-time world champion, 91 race wins & 154 podium finishes - brought wins to Ferrari (2000-04) for the first time since 1979.
Warren Buffett gifts 10 million of Berkshire Hathaway (B shares - over $31 billion) to the Gates Foundation - surpassing Bill and Melinda Gates' endowment of $25.9 billion.
Month of December 2006
Dow: 12,463
Dow month: 1.98%, 6 mo: 11.78%, ytd: 16.29%
S&P 500: 1,418
S&P 500 month: 1.29%, 6 mo: 11.65%, ytd: 13.62%
NASDAQ: 2,415
NASDAQ month: -0.66%, 6 mo: 11.19%, ytd: 9.52%
Reuters-CRB (Commodity Research Bureau) Index of 17 commodities trades at an all-time high above $409.
U.S. home prices down -2.7% in 4Q06 (NAR, compared to 4Q05) second consecutive quarter of price declines in national home prices - S&P/Case-Shiller falls from a high of 206.52 (7/06) to 203.33.
Bank of New York (N.Y.'s oldest bank, founded by Alexander Hamilton in 1784) agrees to buy Mellon Financial for $16.5 billion. It will manage $1.1 trillion in assets and safeguard $16.6 trillion - world's largest Asset managers: Barclay's $1.8, State Street $1.7, Fidelity $1.3 and JPMorgan Chase $1.3 trillion; world's largest Custodian banks: BONY $16.6, JPMorgan Chase $14.0, State Street $11.9 and Citigroup $9.6 trillion.
European Central Bank (ECB) raised interest rates to 3.5% from 3.25% (6th time in 12 months) for 12 European nations.
China chooses Westinghouse (Toshiba) for $5.3 billion nuclear reactor contract (26 by 2020) - China is the 3rd largest nuclear power generator in Asia after Japan & South Korea.
AT&T and Bellsouth merger in $86 billion deal.
President Gerald Ford dies at 93 (longest-lived); 38th President of the United States from 1974-77. Ford replaced Richard Nixon as the only non-elected President is U.S. history. Ford oversaw the withdrawal of American forces from Vietnam and the pardoning of Nixon for the Watergate scandal which was credited for Ford's lose to Jimmy Carter in 1976.
Month of November 2006
Dow: 12,221
Dow month: 1.17%, 6 mo: 9.43%, ytd: 14.03%
S&P 500: 1,400
S&P 500 month: 1.67%, 6 mo: 10.24%, ytd: 12.18%
NASDAQ: 2,431
NASDAQ month: 2.75%, 6 mo: 11.62%, ytd: 10.25%
U.S. unemployment rate falls to 4.4%.
Russia ($1 trillion economy) invited to join the World Trade Organisation (WTO) of 149 members - China joined the WTO in 2001.
HCA completes largest leveraged buy-out in U.S. corporate history at $33 billion - surpassing KKR's 1989 purchase of RJR Nabisco Inc. for $31.3 billion.
Freeport-McMoRan agrees to buy Phelps Dodge for $25.9 billion.
Month of October 2006
Dow: 12,080
Dow month: 3.43%, 6 mo: 6.27%, ytd: 12.72%
S&P 500: 1,377
S&P 500 month: 3.15%, 6 mo: 5.11%, ytd: 10.34%
NASDAQ: 2,366
NASDAQ month: 4.78%, 6 mo: 1.89%, ytd: 7.30%
U.S. population exceeds 300 million (China, 1.32B and India, 1.10B) 100 million reached in 1915 and 200 million in 1967.
European Central Bank (ECB) raised interest rates to 3.25% from 3% (5th time in 10 months) for 12 European nations.
Industrial and Commercial Bank of China (ICBC) launches the world's largest IPO ever - surpassing NTT DoCoMo, $18.4 billion in 1998. Oversubscribed by more than 7 times and bringing in $21.9 billion.
U.N. Security Council adopts resolution to impose sanctions on North Korea for a suspected nuclear-bomb test on Oct 9. Countries with nuclear weapons: United States, Britain, Russia, China, France, India, Pakistan & Israel (unacknowledged).
Michael Schumacher retires as the world's first billionaire athlete - Formula One driver. Schumacher, 7-time world champion, 91 race wins & 154 podium finishes - brought wins to Ferrari (2000-04) for the first time since 1979.
Earnings season for 3Q - the growth rate for the S&P 500 index was 18.7%. The 3Q06 will mark the 13th consecutive quarter of double-digit earnings growth for the S&P 500 index. In U.S. corporate history 13 quarters (of consecutive double-digit earnings growth) has only been achieved once before, 4Q92 - 4Q95.
Month of September 2006
Dow: 11,679
Dow month: 2.62%, 6 mo: 5.13%, ytd: 8.98%
S&P 500: 1,335
S&P 500 month: 2.46%, 6 mo: 3.17%, ytd: 6.97%
NASDAQ: 2,258
NASDAQ month: 3.44%, 6 mo: -3.46%, ytd: 2.40%
U.S. 10 yr. Treauries rally 13.5% from 5.24% (Jul 5) to 4.53% (Sep 25) - in less than 12 weeks. European and Asian funds pour into U.S. debt as global investors anticipate further rate increases by the European and Asian central banks.
U.S. home prices down -1.7% in 3Q06 (compared to 3Q05) the first quarter of price declines in national home prices since 1991 (NAR) - S&P/Case-Shiller Home Price Index falls from a high of 206.52 (7/06) to 205.8.
China's foreign currency reserves have surpassed $1 trillion eclipsing Japan's $900 billion - more than 70% were held in U.S. Treasuries which has fallen to less than 35% as China diversifies.
Alcatel SA and Lucent Technologies Inc. merge in $13.4 billion share swap.
Oil trades below $60 down 24% since its July 10th high - as Americans reduce their "miles driven" (year over year) for the first time since 1981. OPEC looks to cut output from 29.5 million bpd by at least 1m barrels a day - first cut since April 2004.
Month of August 2006
Dow: 11,381
Dow month: 1.75%, 6 mo: 3.53%, ytd: 6.20%
S&P 500: 1,303
S&P 500 month: 2.12%, 6 mo: 1.80%, ytd: 4.41%
NASDAQ: 2,183
NASDAQ month: 4.40%, 6 mo: -4.30%, ytd: -1.00%
NASA awards Lockheed Martin a $3.9 billion contract (part of a $122 billion effort through 2018) to build a spacecraft that will return U.S. astronauts to the moon.
Pension Reform bill signed into law.
Anadarko Petroleum Corp. $23.3 billion acquisition of Kerr-McGee Corp. and Western Gas Resources approved.
European Central Bank's governing council increased their target rate to 3% from 2.75%, - Great Britian, Denmark & Australia also raise rates. People's Bank of China raises the one-year lending rate to 6.125%.
Month of July 2006
Dow: 11,185
Dow month: 0.31%, 6 mo: 2.95%, ytd: 4.37%
S&P 500: 1,276
S&P 500 month: 0.47%, 6 mo: -0.31%, ytd: 2.24%
NASDAQ: 2,091
NASDAQ month: -3.73%, 6 mo: -9.28%, ytd: -5.17%
Oil closes $77.03 an all-time high - intraday high of $78.40.
Bank of China freezes North Korean bank accounts assisting the US-led crackdown of North Korea's alleged counterfeiting and money-laundering.
Bank of Japan raises interest rate to 0.25% up from 0.0%. BOJ's 0.0% rate policy has been in force (except 8/00-2/01) since Mar '99 - 14 other central banks also raise rates.
S&P/Case-Shiller Home Price Index (20-city) rises to a high of 206.52 - rising from 100 (Jan 1, 2000).
Earnings season for 2Q - the growth rate for the S&P 500 index was 16.3%. The 2Q06 will mark the 12th consecutive quarter of double-digit earnings growth for the S&P 500 index. There has only been 1 other instances of at least 12 consecutive quarters of double-digit earnings growth, 4Q92 - 4Q95.
Month of June 2006
Dow: 11,150
Dow month: -0.16%, 6 mo: 4.04%, ytd: 4.04%
S&P 500: 1,270
S&P 500 month: 0.00%, 6 mo: 1.76%, ytd: 1.76%
NASDAQ: 2,172
NASDAQ month: -0.28%, 6 mo: -1.50%, ytd: -1.50%
FOMC Tightening Cycle - Jun 29 - Fed Funds rate increases to 5.25% (17th consecutive increase).
U.S. unemployment rate falls to 4.6%.
European Central Bank's governing council increased their target rate to 2.75% from 2.5%, - India, Denmark, South Korean, Thailand, Turkey & South Africa also raise rates.
Warren Buffett gifts 10 million of Berkshire Hathaway (B shares - over $31 billion) to the Gates Foundation - surpassing Bill and Melinda Gates' endowment of $25.9 billion.
Phelps Dodge acquires Inco (which merges with Falconbridge) for $40 billion. Arcelor merges with Mittal Steel for $38.3 billion.
NYSE Group reaches deal to acquire Euronext. NYSE counterbids (Deutsche Borse) $10.2 billion for the pan-European Stock Exchange - Euronext's price rises from €21.70 (Jan 5, 05) to €79.15 (May 9) 364% in 17 months.
Month of May 2006
Dow: 11,168
Dow month: -1.75%, ytd: 4.21% 6 mo: 3.36%
S&P 500: 1,270
S&P 500 month: -3.05%, ytd: 1.76%, 6 mo: 1.68%
NASDAQ: 2,178
NASDAQ month: -6.20%, ytd: -1.22%, 6 mo: -2.42%
FOMC Tightening Cycle - May 10 - Fed Funds rate increases to 5% (16th consecutive increase).
$70 Billion Tax cut (extension) bill signed into law.
Platinum $1335 and Copper $4.03/lbs trade at all-time cash highs. Gold trades $732 - highest since February 1980, when Gold spent 3 weeks above $700. Silver trades $15.21 - highest since February 1983. Reuters-CRB (Commodity Research Bureau) Index of 17 commodities trades at an all-time high above $399.
Wachovia Corp., the 4th largest U.S. bank, pays $25.5 billion for Golden West Financial Corp.
Corporate fraud verdicts returned on Ken Lay, Jeffrey Skilling and Andrew Fastow (Enron). Enron's collapse caused the closing of Arthur Andersen. Five years and the implementation of Sarbanes-Oxley saw John J. Rigas (Adelphia), Sam Waksal (ImClone), Bernie Ebbers (WorldCom), Dennis Kozlowski (Tyco), Martha Stewart, Global Crossing, Qwest, HealthSouth, Rite Aid, Fannie Mae, AIG and others litigated, convicted, fined and/or imprisoned.
Medicare (Part D) Prescription Drug benefit (coverage began Jan 1, 2006). Over 37 million of Medicare's 43 million beneficiaries have enrolled as of May 15 (next open enroll begins Nov 15, 2006). Estimated to cost $724 billion over 10 years, it is the biggest expansion of Medicare since its creation in 1965. The voluntary program is designed to promote competition among private insurers in the marketplace. By entering your individual information at www.medicare.gov your best choices (prescription drug plans) are provided - average monthly premium is about $24 a month.
Month of April 2006
Dow: 11,367
Dow month: 2.32%, ytd: 6.07% 6 mo: 8.88%
S&P 500: 1,310
S&P 500 month: 1.24%, ytd: 4.97%, 6 mo: 8.53%
NASDAQ: 2,322
NASDAQ month: -0.73%, ytd: 5.31%, 6 mo: 9.53%
China increases interest rates in order to cool domestic economy growing at 9-11%. China's Three Gorges dam approaches completion (May 20) - the $25 billion project is the world's largest. Beijing-Lhasa Express begins (July 1) the 710-mile link to the Tibetan capital climbs to over 16,640 feet, oxygen-assisted - $4.2 billion, 5 years.
Boston Scientific acquires Guidant in a $27 billion buyout.
NASDAQ purchases a 25% interest in the London Stock Exchange (1566-1698 in the Royal Exchange, New Jonathon's in 1773 and officially founded on March 3, 1801) - LSE's price rises from 341p (Oct 20, 04) to 1280p (Apr 19) 375% in 18 months.
Earnings season for 1Q - the growth rate for the S&P 500 index was 14.9%. The 1Q06 will mark the 11th consecutive quarter of double-digit earnings growth for the S&P 500 index. There has only been 1 other instances of at least 11 consecutive quarters of double-digit earnings growth, 4Q92 - 4Q95.
Month of March 2006
Dow: 11,109
Dow month: 1.06%, ytd: 3.66% 6 mo: 5.12%
S&P 500: 1,294
S&P 500 month: 1.09%, ytd: 3.69%, 6 mo: 5.37%
NASDAQ: 2,339
NASDAQ month: 2.54%, ytd: 6.08%, 6 mo: 8.74%
FOMC Tightening Cycle - Mar 28 - Fed Funds rate increases to 4.75% (15th consecutive increase).
NYSE, the world's largest stock market, demutualizes and mergers with Archipelago Holdings Inc. (and Pacific Exchange). After 213 years, as member-owned (1,366 members), the NYSE goes public.
Bank of Japan ends over 7 years of deflation fighting, Mar 9 - BOJ's ultra-loose monetary policy (0% since Mar '99) is over; removing excess liquidity and managing interest rates is now the policy.
European Central Bank (ECB 12-nation Euro zone) 18-member governing council increased their target rate to 2.5% from 2.25%.
DP World (United Arab Emirates) will divest itself of 6 U.S. port operations in its acquisition of British owned P&O - facing national securities opposition by Congress.
Month of February 2006
Dow: 10,993
Dow month: 1.19%, ytd: 2.58% 6 mo: 4.89%
S&P 500: 1,280
S&P 500 month: 0.00%, ytd: 2.56%, 6 mo: 6.31%
NASDAQ: 2,281
NASDAQ month: -1.04%, ytd: 3.45%, 6 mo: 7.39%
U.S. unemployment rate falls to 4.7%.
U.S. 30yr Treasury bonds auctioned - Reissued on Feb 9, $14 Billion at 4.53% (lower than the Feb '99 low yield of 5.298%) - last 30yr Treasury issued Aug 2001 (discontinued for 4.5 years).
India, the world's 2nd largest Emerging market economy ($3.6 trillion), SENSEX index closes above 10,082 (Feb 7) - rallying from 6,118 (Apr 18) to 10,422 (Feb 28), over 70% in the past 10 months.
Ben Bernanke (Federal Reserve Governor, Aug '02 - Jun '05 and former Chairman of the White House Council of Economic Advisers) succeeds Alan Greenspan as Chairman of the Federal Reserve. Bernanke delivered his first Federal Reserve semi-annual policy report to Congress, Feb 15 - affirming continuity of policy. Kevin Warsh (Stanford University) a White House economic aide and Randall Kroszner (University of Chicago) a former White House adviser have been appointed to fill two vacancies on the Federal Reserve Board. Donald Kohn (senior Governor of Fed) to be nominated as vice Chairman of the U.S. central bank.
2006 XX Olympic Winter Games Torino, Italy where German, American, Canadian, Austrian, Russian & Norwegian athletes scoop up medals. Joey Cheek (US) after winning 500 meters (silver 1000 meters) speed skating announces donating his $40,000 (all U.S. athletes receive $25k, $15k or $10k from the U.S.O.C.) to "Right to Play" - founded by Norwegian superstar Johann Olav Koss (who won 3 gold medals in the 1994 Olympic Games, Lillehammer) inspiring Cheek. Over $500,000 have been pledged by athletes - U.S. athletes chose Cheek to carry U.S. flag in closing ceremony.
Month of January 2006
Dow: 10,864
Dow month: 1.37%, ytd: 1.37% 6 mo: 2.11%
S&P 500: 1,280
S&P 500 month: 2.56%, ytd: 2.56%, 6 mo: 3.73%
NASDAQ: 2,305
NASDAQ month: 4.54%, ytd: 4.54%, 6 mo: 5.54%
FOMC Tightening Cycle - Jan 31 - Fed Funds rate increases to 4.50% (14th consecutive increase).
Canada, U.S.'s largest trade partner, Stephen Harper (Conservative Party) defeats Paul Martin (Liberal Party) ending a 12-year Liberal rule to become Canada's next prime minister. TSX Composite Index rallies from 10,519 (Nov 10) to close at an all-time high above 11,999 (Jan 31) more than 14% in less than 3 months.
Bill Ford, chairman and great-grandson of the founder of the Ford Motor Co., announces Ford will no longer provide quarterly and annual guidance - the lifeblood of Wall St. investment analysts - Ford's restructuring will focus on a new CEO & building the cars their customers buy. GM faces similar or greater restructuring challlenges including selling GMAC and troubles with Delphi.
Alan Greenspan, Chairman of the Federal Reserve (world's most powerful central banker), retires after 18.5 years. He started his tenure on August 11, 1987 (just weeks before the October 19 crash, 508.32 points) - DJIA fell from 2,746 (Aug 25) to 1,616 (Oct 20) a 41% decline (in 40 trading days). Greenspan oversaw nearly two decades of U.S. prosperity with only 18 months of moderate recessions (less than 8.2%). His Federal Reserve tenure was the second-longest (William McChesney Martin, nearly 20 years) as he steered the U.S. economy through numerous challenges. Greenspan replaced Chairman Paul Volcker, who was appointed in 1979 and is remembered for cutting inflation from 14.8% (CPI, the Misery Index included unemployment at 20.6%) to 2.5% (in 1983). Volcker conquered stagflation by raising interest rates, while encouraging fiscal restraint, trade and productivity gains.
Iran (pop. 68 million, Islamic republic) moves its foreign exchange out of European banks in advance of referral to the U.N. Security Council and possible imposition of economic sanctions over its nuclear program. Iran is OPEC's second largest oil producer (after Saudi Arabia) and holds 10% of the world's proven oil reserves. Iran also has the world's second largest natural gas reserves (after Russia).
Earnings season for 4Q - the growth rate for the S&P 500 index was 14.4%. The 4Q05 will mark the 10th consecutive quarter of double-digit earnings growth for the S&P 500 index. There have been only 2 other instances of at least 10 consecutive quarters of double-digit earnings growth, 2Q72 - 3Q74 and 4Q92 - 4Q95.
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 (click)
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.