HAPPY NEW YEAR
MARKET WATCH
When planning a vacation most of us book a round trip fare because the goal is to start the vacation from one point, explore wonderful sights, exquisite beaches, historical landmarks, or other such treats, and return home exhausted. The round trip on the S&P 500* this year, while definitely exhausting, was not particularly satisfying when compared to any of the vacations above. Yet a round trip is exactly how you have to define the performance of the S&P 500* for 2011 when comparing the January open of 1,257.64 with the December close of 1257.60 for a statistically insignificant drop of .04 of a point, or essentially, a FLAT performance for the year!
The rare event of a flat performance for the S&P 500* did not occur without some dramatic point swings and gut wrenching volatility. In fact, the S&P 500* peaked at 1,363.61 on April 29th, and then bottomed out at 1,099.23 on October 3rd. This decline from peak to trough was 19.4% and very close to the 20% decline which defines a bear market. So, in retrospect, I guess we should be thankful for a flat performance.
The stock market this year has been affected by a litany of investor concerns which we have discussed before. Unemployment stuck near 9% for most of the year, global political unrest, natural disasters and the European sovereign debt crisis have been recurrent themes. Even as the news on the economic front continues to improve in the US, all of the other distractions, particularly the perceived dysfunction of government in the run up to the 2012 elections, weighs on market performance.
The good news is the government is performing as it was designed by our forefathers, when there is no clear majority which will support either the extreme left or right policies currently being put forth. Recently, George Will noted, “ Nothing that happens this November will bring an apocalypse. America had 43 presidencies before the current one and will have many more than that after the end of this one in 2013 or 2017. Decades hence, it will look like most others, a pebble in the river of American history”. At some point soon, we might even see some actual compromises taking place, such as reforming the tax code, reining in the deficit, and controlling the costs of entitlement programs, like Medicare, Medicaid and Social Security, so they remain viable for future generations.
Even though the S&P 500* was flat for the year, the Dow Jones Industrial Average (DJIA*) managed to eke out a 5.53% gain closing at 12,217.56 which is an increase of 640 points. On the other hand, the NASDAQ* was down 47.72 points and closed at 2,605.60 which is a 1.80% decline. So, 2011 ends as sort of mixed bag, but 2012 may have some real upside potential if the holiday spending translates into improved earnings.
As of this writing we are one week into 2012, and the DJIA* increased 1.17% from its 2011 close, the S&P 500* has added 1.61%, while the NASDAQ* gained 2.65%. Positive indices for the first week of trading generally bode well for annual performance. The Bureau of Labor & Statistics also released the December Employment Report which added 200,000 jobs to the economy and brought the unemployment rate down to 8.5%. While this report is very positive, there were 42,000 courier and messenger positions added during the month, which indicates at least some seasonal adjustment will occur in next month’s numbers. I think market volatility and economic improvement will continue in the US in 2012.
CHANGES FOR PARTICIPANTS IN VARIOUS RETIREMENT PLANS
There are some changes to the limit on the amount of elective deferrals that a plan participant can contribute to a traditional or safe harbor 401(k) plan, 403(b) plan, SARSEP or 457(b) plan. The limit is $16,500 for 2011, and it increases to $17,000 for 2012. Thereafter, cost of living adjustments will be made to the increase in the amount of elective deferrals. Catch up contributions, up to $5500, are allowed for 2011 & 2012.
The elective deferral limit for a SIMPLE IRA retirement plan is $11,500 for 2011 & 2012. Traditional IRA and ROTH IRA contributions are limited to $5,000 or $6,000 if the individual is 50 or older. If you have any questions, or wish to set up and/or contribute to a retirement plan, please don’t hesitate to contact me.
ENERGY PRODUCTION HEADS TO MORE STABLE LOCALES
During the 4th quarter of 2011, the United States became a net exporter of energy, something which hasn’t happened in several decades. Without much fanfare, or support from the government, Big Oil has been redrawing the energy map. Rather than searching for oil and other fuels in the Persian Gulf, the desert sands of North Africa, the Niger Delta and the Caspian Sea, there has been a shift towards less exotic locales, as Western energy companies increasingly search for supplies in more stable and economically viable countries.
The oil sands of Canada, as well as deep water oil off the coasts of Brazil and the US, shale oil in the continental US, and shale gas deposits in the US and Europe are becoming technologically and economically more attractive than energy deposits in countries such as Venezuela and Russia, where the threat of nationalization is more likely. This new way of looking at risk is fundamentally reshaping the way international oil companies are doing business. They can either invest in oil that is easy to produce, but runs the risk of political interference, or they can produce oil and gas in countries which are stable, but have deposits which are more difficult to extract. The latter seems to be the choice most companies are making at the present time.
The technological advances making this seismic change possible are called horizontal drilling and hydraulic fracturing, or fracking, as it is commonly called. Many communities in the Midwest and Eastern regions of the US are now debating the economic and environmental implications of production in areas such as the Marcellus & Devonian Shales. While the debate rages, many land owners are realizing the economic benefit of owning mineral rights beneath their property.
North Dakota is one of the newest oil hot spots in the United States. Along with parts of Montana, Saskatchewan, and Manitoba, North Dakota is home to the largest accumulation of oil in North America. This oil deposit is bigger than Louisiana, Texas, California, and Alaska's Arctic National Wildlife Refuge, and it is called the Bakken Formation. While much of the country is suffering from close to 9% unemployment, this region can’t seem to fill oil production jobs fast enough.
Meanwhile, President Barack Obama and Congress are starting the election year locked in a tussle over a proposed 1,700-mile oil pipeline from Canada to Texas that will force the White House to make a politically risky choice between two key Democratic constituencies, unions and environmentalists. The fate of the Keystone Pipeline XL must be decided by February, as part of the agreement extending the payroll tax cut. This should be a very interesting election year.
* THE S&P 500, THE DJIA AND THE NASDAQ ARE UNMANAGED INDEXES THAT ARE WIDELY USED AS INDICATORS OF MARKET TRENDS. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. THE PERFORMANCE OF THESE INDEXES DOES NOT REFLECT FEES AND CHARGES ASSOCIATED WITH INVESTING. IT IS NOT POSSIBLE TO INVEST DIRECTLY IN AN INDEX.
DOLLAR COST AVERAGING THROUGH A SYSTEMATIC SAVINGS PLAN IS AN EXCELLENT WAY TO BUILD AN ACCOUNT WITHOUT A SIZEABLE INITIAL INVESTMENT. SAVING A PORTION OF OUR PAY EACH MONTH IS VERY IMPORTANT. COMPANY SPONSORED PENSION PLANS ARE ONE METHOD TO SAVE AND SHOULD BE USED FOR RETIREMENT. OTHER SYSTEMATIC INVESTMENT ACCOUNTS, SUCH AS ROTH IRA’S, TRADITIONAL IRA’S, COVERDELL ACCOUNTS, 529 PLANS, BROKERAGE ACCOUNTS AND ANNUITIES CAN ALSO BE OPENED, AND DEBITED DIRECTLY FROM YOUR CHECKING OR SAVINGS ACCOUNT. FOR MORE INFORMATION, JUST CALL TO SET UP AN APPOINTMENT. REFERRALS ARE ALWAYS WELCOME.
JOHN H. KAIGHN
COMPANY INFORMATION:
Investment Advisory Services offered through:
Jersey Benefits Advisors
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com
Securities offered through:
Transamerica Financial Advisors, Inc.
A registered Broker/Dealer
570 Carillon Parkway
St. Petersburg, FL 33758-9053
800-245-8250
Member FINRA & SIPC
Transamerica Financial Advisors, Inc. is
not affiliated with Jersey Benefits Advi-
sors.
Third Party Administration and Insurance
Services offered through:
Jersey Benefits Group, Inc
P.O. Box 1406
Ocean City, N.J. 08226
Phone: 609 827 0194
Fax: 609 861 9257
Email: kaighn@jerseybenefits.com
Http://www.jerseybenefits.com/
All opinions expressed in this newsletter are
solely those of John Kaighn & Jersey Benefits Advisors.
LD 42655 - 01/12
