I have your attention, right?  Wow, a 2011 forecast!  Not so fast.  Before I attempt to guess about the future, let me first warn you that we are entering the time of the year for pundits to make apparently irrefutable forecasts of their view  of 2011. But, be wary of such forecasts.  Why?  Because stuff happens.  Unexpectedly.  As a result, forecasters utterly misread outcomes.  For example, who could have forecast a volcanic eruption in 2010 that played havoc with air travel in Europe, the Greece/Ireland crisis, the tragic floods in Pakistan, the earthquake in Haiti, the massive oil spill in the gulf.  These were some of the biggest events of 2010, and each left its mark on the year 2011 both economically and psychologically. 

 

“Winning is a habit. Watch your thoughts, they become your beliefs. Watch your beliefs, they become your words. Watch your words, they become your actions. Watch your actions, they become your habits. Watch your habits, they become your character.”

Vince Lombardi as repeated 11-24-10 by Iron Mike Ditka during his LifePath Luncheon speech at the Holiday Inn Conference Center Lehigh Valley. 

VIOLENCE AND FEAR OF FINANCIAL crises abroad cast a shadow on trading at home last week, but it wasn’t long enough to depress the U.S. market severely.

North Korea’s deadly attack on the South Korean island of Yeonpyeong—170 rounds in all—seemed nothing short of an act of war, though propagandists for the North’s dictator, Kim Jong Il, thought it best to release a photo of him surveying bottles of soy sauce. Police in Rio de Janeiro battled shantytown gangs, which might have made more headlines in a week without the Thanksgiving holiday. At center stage was Ireland’s sovereign-debt bailout of roughly 85 billion euros (U.S. $113 billion), and fears that Portugal and Spain will be next.

The euro dropped 3% on the week, to $1.32, though that’s nowhere near the low of $1.19 it reached earlier this year when the currency’s future was being called into question.

U.S. market indexes mostly slumped, with the Dow Jones Industrial Average down 1% to 11,092 for the four trading sessions, with Friday’s put to bed after a half-day. The Standard & Poor’s 500 Index fell 0.9% to 1189.40. But the Nasdaq Composite showed signs of life, rising 0.7% to 2534.56, as did the components of the Russell 2000 index, which gained 1.2%.

Financial stocks posted the biggest decline for the week as investors shied away from risky assets. Oil and gas shares also didn’t do well, though oil prices rose nearly 3% for the week to more than $86 per barrel. Natural gas prices shot up 5.6% to nearly $4.40 per million British thermal units.

“The reason the stock market didn’t fall more this past week is that there is a perception that while these are large problems, it’s likely European officials will expand their bailout facilities, and the ECB will come in and buy some of these government securities to stabilize the market,” said Ed Yardeni, chief investment strategist at Yardeni Research based in Brookville, N.Y. “Clearly the bond vigilantes have gone from getting riled up about Ireland to now focusing on Portugal and Spain, and the question is if European authorities can re-establish some order in the capital markets.”

The European Commission suggested doubling the size of Europe’s €440 billion bailout fund, an idea promptly dismissed by Germany. Eurozone members are likely to push for some kind of rescue package in Portugal to restore market confidence and preempt further instability, according to Eurasia Group analysts. In Spain, the government insists it can slash deficits, though its rising bond yields last week underscored fear about unemployment and low productivity (Source: Barrons Online).

The economy continues to give us mixed signals. Here is a succinct list of what happened last week:

Positives
1) Ireland getting bank bailout, fire put out for now
2) China, Hong Kong and South Korea all take steps to battle rising inflation
3) Philly Fed report on economic activity much better than expected and at best level since Dec ’09
4) Initial Unemployment Claims fall below 440k for 2nd straight week
5) US Retail Sales show upside surprise
6) Germany Nov ZEW (indicator of economic sentiment) unexpectedly rises
7) From contrarian view, bulls in AAII (American Assn of Individual Investors) fall to 40 from 57.6 which was highest since Jan ’07

Negatives
1) China, Hong Kong and South Korea all take steps to slow things down
2) Multi-family housing “starts” to fall sharply
3) NY report on manufacturing activity much weaker than expected (but 6 mo outlook rises)
4) Interest rates move higher, average 30 yr mortgage rate at 2 mo high
5) Mortgage Refi’s fall 17%, purchases down 5%
6) Municipal bonds come under pressure

President Franklin D. Roosevelt set Thanksgiving as the Thursday before last of November as Thanksgiving Day in the year 1939.  His critics claimed he did so to make the Christmas shopping season longer and stimulate the economy.

Valley National professionals use income tax and financial planning research software to analyze and research complex questions and issues of their clients. Valley National purchases it from Commerce Clearing House (CCH). The CCH software is extensive and very detailed. And, it is linked to the income tax return preparation software. This link permits the tax return preparer to be on top of any tax issue involving any tax form just by a click of his or her mouse.

“Winning is not everything, but the effort to win is.”

Zig Ziglar

The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®. This week “Your Financial Choices, 6 to 7 pm: Host Laurie Siebert, CPA, CFP(r) brings you highlights of some of her favorite shows over the past year in this pre-recorded show. If you have questions, visit the show’s website www.yourfinancialchoices.com . WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton/Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville/Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com  and visit www.wdiy.org .

My Steelers are getting a bad rap. The NFL referees are unfairly penalizing them. Several of the Steelers defensive players have developed a reputation for causing fumbles and making big hits (and, unfortunately, injuries). The NFL Commissioner has held individual meetings with several Steelers players to instruct them on play. But, the referees seem to have misapplied these points. Now, the referees are penalizing these players plus several other Steelers players for clean hits; and, I think a lot of these calls go back to the Commissioner’s involvement. This week the Steelers were called on 18 penalties of which 14 were accepted by the Oakland Raiders. The Steelers still won even with the lopsided penalties. But, the outcome might be different if the Steelers were playing a high quality opponent. The Steelers’ GM or Coach needs to call the Commissioner’s office to seek fair play among the referees.