Saturday, December 31, 2011

What’s To Come In 2012 - High Tide or Low Tide?

2011 has finally died and I doubt that very many people attended the funeral. For most Americans, the US economy is likely still in a recession. Although, we all know that the government propaganda machine will continue to report falling unemployment, slow but steady GDP growth, rising home sales, rising income, rising consumer confidence, and falling inflation. However, none of this seems likely given that Americans suffered a $2 trillion dollar drop in Q3 net worth, real inflation measured by milk and eggs and gasoline is up to painful levels, better than a third of of mortgages remain underwater, home prices continue to fall, no one can actually sell their home unless it is greatly discounted, half the population is either in the low income or poverty percentiles, real income has been falling for years, and, well, everything our government says is just simply a lie. Real people eat and pay bills and they know things are more expensive compared to a few years ago. But money is like water. It doesn’t disappear. When people lose money and drop into the low income stratus or they lose their job or house or investments, where does the money go?
According to at, the high net worth population of the world is now larger than it was in 2007. This population is defined as having more than $1 million dollars in investible assets. There are now 10.9 million of these folks with the US having the most followed by the Asia/Pacific region and then Europe. The central banks have done a wonderful job taking assets from the poor and giving them to the rich. Who benefited from all the banker bailouts? The rich. Who benefited from all the government inside information? People like Nancy Pelosi. Who was dealt the bag of manure? The poor people.
But there is good news. As we move into 2012, we should all think and act like the high net worth people. What are they doing with their money? According to the report sited above, the high net worth people had in 2010 a third of their money in equities, 29% in fixed income, and 15% in real estate. So, when the central bankers intervene in the stock casino to stoke a rally in stocks, you now know why. This same group also plans to raise the amount allocated to equities in 2012. Do they know something is up? Well, they know that the central bankers work for the financial elite and there is so much wealth tied up in stocks that the central bankers have to continue to goose up the stocks. Hip-hip- hurah! Let the 2012 stock rally commence! I have total confidence that Ben Bernanke can make it happen. More importantly, the central bankers must tip their hand in advance so the super wealthy can get the inside track.
Below is the 2011 chart of the Wilshire 5000 on a monthly basis. From the peak in late July, the Wilshire 5000 actually fell as much as 21% at its low in September. Yep, that’s a bear market. Miraculously, on the second trading day of October there was a 400 point rally in the last forty minutes of trading that ignited the Q4 rally that brought the indices back to the flat line for the year. We could have the super rich losing all their money now could we? After all, this is why the central bank was established - to make the rich richer. Any other reason is simply for the ignorant to consume. Look at the chart below. The Wilshire is of course the broadest measure of stocks so it is a good representation that without the miracle month of October, 2011 could have been an entirely different kind of year. Incredibly, the strong end of the year comeback happened with an outflow of funds from mutual funds and ETFs. Apparently somebody that can’t be traced mustered a powerful inflow of funds back into the equity market and we will just call that somebody the Federal Reserve. As money flowed out of the poor man’s pocket it flowed back into the pockets of the rich man. Isn’t that nice? The bottom line is this. If the high net worth individuals are beefing up their stock holdings, shouldn’t we do the same? Don’t let all this talk of debt and default and euro disintegration fool you. The central banks have captured our printing presses, our data collectors, and our media. They can shoot a bear and raise a bull anytime they want to. 2012 will likely be kind to the high net worth crowd. It’s like being at the beach and all we have to figure out is whether the tide is coming in or going out. I think the super wealthy want the tide to come in. Happy and prosperous New Year to all!

WLSH - monthly, 2011
Chart courtesy
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. Advisory services offered through BMF Investments, Inc.

1 comment:

  1. Trend in FII flows: The FIIs were Net Value of Rs 1038.31 the cash segment on Wednesday while the DIIs were Net Value of Rs -667.91 as per the provisional figures.CapitalStars