What’s Been Happening?
While it may seem like the year sputtered to a flat finish, a look around the globe tells a different story. Emerging Markets scored enormous gains as the “ten flatteners” (such as offshoring and outsourcing) that Thomas Freidman talks about in “The World is Flat” took hold. Bangalore was booming. We frequently hear sound bites about the increasingly less relevant Dow Jones Industrial Index (flat for 2005), the Nasdaq (up 1.37% in 2005) and the S&P 500 (+4.89% in 2005). Our global portfolios substantially outperformed.
A year ago, when our press was decrying the endless swoon of the dollar, we wrote, “Common thinking has become too comfortable around the two ideas that the dollar will fall and long-term interest rates will rise. Should expectations change on those themes, prices will do some adjusting”. Sure enough, the dollar gained 15% in 2005 against the Euro and the Yen, but you don’t see many headlines to that effect. And long-term interest rates still haven’t changed much.
Trends to be Aware of
The national savings rate is the lowest since the late fifties. From 11% as recently as 1980, it may even turn out to be below zero for 2005. We see two causes for this – rising real estate values and an aging population. Consumers have stepped up, with their pockets fattened by swollen home equity (up, on average, by two thirds since 1999). Secondly, the Baby Boomers are starting to retire and spend their savings, not add to it.
We know most of our clients do a great job of setting aside money for savings and would encourage those who have been relying on the increasing value of their real estate to play it safe and add some money to savings outside that sector.
What To Expect From Here
Markets were relatively quiet in 2005, with only about half as much volatility as the long-term average. As always at the beginning of the year, there are split opinions about what the New Year will bring, so someone will surely be right. It would be wise to prepare for more volatility, continue to think long term and exercise regularly!
Some Numbers for Comparison:
The following table compares the main indices against which fund performance is measured. All figures are for the periods ending 12/31/05.
|
Index
|
What it Measures
|
Last 3 Mos.
|
Last 12 Months
|
3 Years, Annlzd
|
5 Years, Annlzd
|
|
Standard & Poors 500
|
U S Stocks w/div
|
2.08%
|
4.89%
|
14.39%
|
0.54%
|
|
Russell 2000
|
Small Stocks
|
1.12%
|
4.55%
|
22.13%
|
8.22%
|
|
Morgan Stanley EAFE
|
Foreign Stocks
|
4.12%
|
14.02%
|
24.18%
|
4.94%
|
|
MSCI Emerging Mkts
|
Emerging Mkts
|
7.20%
|
34.54%
|
38.35%
|
19.44%
|
|
Thompson Tech/Comm
|
Technology
|
3.68%
|
5.56%
|
18.36%
|
-9.39%
|
|
Real Estate Inv Trusts
|
Real Estate
|
1.54%
|
11.92%
|
26.35%
|
18.99%
|
|
Lehman Bros. Ag Bond
|
Bonds
|
0.59%
|
2.43%
|
3.62%
|
5.87%
|
|
CPI
|
Inflation
|
-.60%
|
3.84%
|
2.99%
|
2.58%
|
Source: Thompson Financial
