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Sunday, January 8, 2012

2012 brings hope

Tony Paradiso

With a new year upon us, hope, as they say, springs eternal. Regular readers know I don’t place much value in hope. I prefer reality and preparation. But this year there is reason to hope. The U.S. economy is on the mend, and it appears the mending process is accelerating.

Of course, the Mayans prediction of the end of the world puts a damper on things. Then again, the world came to end quite a while ago for the Mayans so I’m not putting much credence in their “final days” prediction. No doubt, the Mayans attended the Harvard Business School of Catastrophic Predictions so we’re fairly safe.

Safe, providing we survive an entire year of electioneering. On Tuesday we’ll tell the nation what we think of the Republican candidates. As much as the media wants to inject doubt onto the process, I’ll make my first prediction of the year: Mitt “Ken Doll” Romney will be the Republican candidate for president.

I know, I’m out on a climb on this one. Talk about the prettiest pig at the dance. They should make a movie about the Republican field, and I have a title suggestion: The Un-electables. What a cast of characters. With Rick Santorum and Ron Paul as the alternatives to the presumptive nominee, Romney is the Republican version of John Kerry. Notwithstanding the economic boost the primaries provide to the state, I’ll be glad when everyone moves on to South Carolina.

That brings me to my second prediction of the year: if the economy and unemployment improve even modestly, President Barack Obama will be re-elected. If the economy worsens, Romney will be our next president. Now everyone in Washington get back to work.

Talk about hopeful thinking. Sadly, the reality is that my second prediction will be at the heart of all political maneuvering prior to the election. Rather than do the right thing, expect the Republicans to resist any action that might improve things.

But enough politics; on to economic matters. Despite being hopeful about 2012, I’m not prepared to make a prediction for the year. The reason: Europe. If not for Europe I’d be confident that this would be a very good year. But “if” is a big two-letter word and Europe’s problems remain. Just how much of an impact the euro-zone will have on us this year is the question. I’ll get back to you on that but the first week of trading is a hint. Think see-saw.

As for last year’s predictions I haven’t tallied the entire year’s total as yet. However, this time last year I made five predictions, one of which was spot on. All-in-all in my Jan. 9, 2011, column I was 3-1-1.

I said the employment picture would marginally improve and private sector employment gains would be somewhat offset by state and federal workforce reductions. And that was about the size of it.

Despite the pressures on municipal budgets, and unlike one-hit-wonder Meredith Whitney – who embarrassed herself with her couldn’t-be-more-wrong call for municipal bond Armageddon – I didn’t believe municipal defaults would be a factor. There were two, slightly short of Ms. Whitney’s call for 50 to 100.

My call for increased merger and acquisition and stock buyback activity was wrong. It turns out that despite balance sheets bloated with cash, companies stood pat.

The stock picks of Citibank, Chevron and Ford were mixed with only Chevron in positive territory on the Jun. 30 sell date. However, the three-stock portfolio garnered a 5.6 percent gain during the period from Jan. 7-Jun. 30. That outperformed the S&P gain of 3.9 percent but fell short of the Dow which was up 6.3 percent. Call this one a wash.

But the prediction I am most proud of was my overall stock market call. It couldn’t have been more accurate if it were written today. The call went as follows: the markets would show strong gains in the first half then suffer a second half decline with an end-of-year close below the Jun. 30 close.

April 29 marked the peak for all the markets. By Jun. 30 the Dow, S&P and Nasdaq were up 7.4 percent, 5 percent and 4.7 percent respectively. From there, as we’re painfully aware, it was a downward slide. The Dow and S&P hit their lows in August while the Nasdaq didn’t bottom until early October. With a late rally the Dow was able to post a yearly gain of 5.7 percent. The S&P was virtually flat and the Nasdaq lost 1.7 percent. All the indices closed the year lower than their June 30 close. I should get two points for that one.

Talking about the major indices, by focusing on the Dow as the leading indicator for the financial markets, I’ve been doing readers an injustice. The Dow is a legacy index that most professionals consider secondary to the S&P. Given the Dow has 30 stocks versus the 500 for the S&P, the sample size alone makes the S&P a more representative index. So this year I will be using the S&P as the benchmark. I might even attempt to pick its year-end value.

Author, professor, entrepreneur, radio and TV commentator, Tony Paradiso can be reached at paradiso@tds.net.