The 10 Myths of 2011

 | Jan 03, 2012 | 7:34 AM EST  | Comments
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Oh, to be part of the intelligentsia, the bearish think tanks that inspire so much of what passes for conventional wisdom that then gets passed on to the "news."

I  yearn for it because it is never wrong, always prescient and seems to make so much money when the truth is, of course, that it is often wrong, rarely prescient and costs you a fortune.

With that in mind, here's the ten bearish myths, all conventional wisdom, that you read about over and over again and pretty much took for gospel:

  1. The United States would be one of the worst performing markets of the year. When I was a hedge fund manager, no matter how antiquated it seemed, I compared myself to the Dow Jones Averages. They were up 5.5%, led by Mcdonald's (MCD) up 30%, with giant exposure to overseas, particularly ailing Germany and France, followed by IBM (IBM), rallying 25%, also with a giant business in Europe, followed by Pfizer (PFE), the drug company that vaulted 24% despite losing Lipitor exclusivity, and Home Depot (HD) running 20% even as the housing crisis worsened in 2012.
  2. The dollar had to go down, didn't it? Obama busted the budget. The GOP showed no restraint. We printed money left and right through the Fed. Bernanke expanded the money base and the Fed's balance sheet. We had horrendous trade deficits, much of it needlessly with oil. The DXY, the dollar index, started at 79 an finished at 80. That's some dollar decline. Lesser of all evils, perhaps?
  3. Interest had to go higher, didn't they? Wasn't that what the big budget tussle was about? Didn't we fear a huge increase in rates from the brilliant S&P downgrade? Aren't we spending way too much money in a guns-and-butter, Lyndon-Johnson-like plan? Aren't we the most profligate country in the world? Didn't we fail to curtail any entitlements? Yes, we did, but we have no inflation in this country to speak of save food inflation and judging by the climbing restaurant stocks and declining ag stocks that might be a thing of the past. Ben Bernanke did keep them down, but I question how much he was responsible for. The Chinese are nuts not to take the gain here. Turns out it was a trade of a lifetime. Chou en Lai, that wild and crazy Communist visionary, would be thrilled and no doubt rolling in his grave with joy. Congratz to the New York Times' Paul Krugman for getting this right and recognizing that employment was the issue. Razzes to Treasury Secretary Tim Geithner who didn't realize the opportunity of a lifetime to issue a $1 trillion dollars' worth of 30-year paper and eliminate our potential Italy liquidity problem own the road.
  4. Oil trades with other commodities and would get hit by a worldwide slowdown. Just the opposite occurred and oil was strong all year despite the slowing of all economies either through a lack of stimulus or design. Sure, there were supply disruptions. But the main issue is that the market seems not to be working and the Chinese are also rapacious losers, even when their economy isn't red hot.
  5. Propagated by an errant New York Times reporter, our nat-gas reserves are understated. Nat gas finished at a 28-month low and shows no sign of rising because of a seeming endless glut brought on by signed contracts that require drilling. Reserves are dramatically understated because of arcane SEC rules designed to catch hype artists.
  6. Gold peaked and would be headed down big. Actually gold rallied again, 11-straight years, as it proved to be correlated with nothing but lack of supply and strong demand. Sure it didn't finish at the high, but the GLD did rally 10%. Gold could be up nicely again given that the circumstances that plagued 2011 have stayed on the horizon
  7. The euro has to be falling apart and is coming apart at the seams because of the sovereign debt crisis. Oops, the euro as measured by the FXE basically finished where it started. Where's the tainted beef?
  8. I succumbed to this one until I realized that it was the year of high yield, Big Pharma is dead. Pfizer was one of the top performers in the Dow. Merck (MRK) and JNJ (JNJ) finished nicely in the black, with the latter defying seemingly endless recalls. Lilly (LLY), long ago left for dead, rallied 25% Bristol-Myers (BMY), my personal fave, zoomed almost 40%.
  9. The consumer, completely strapped, would run out of gas. The consumer gained steam the whole year and did so with a cash market, not a borrowed market. One of the largest worries of 2011, the over-levered consumer, turned out to be a joke. Could this be because so many stopped paying their mortgage? That so many stayed in their parents' houses. Government payments? Off the books hiring that wasn't measured? I think it was a combination of all of these, even though most aren't acknowledged or talked about.
  10. The Dogs of the Dow are the place to be. These stayed in the bow-wow chateau, with Bank of America (BAC), Alcoa (AA) -- which I fell for-- Hewlett-Packard (HPQ) and Cisco (CSCO) all underperformers (especially BAC and AA, which really hurt). The world's economy wasn't strong enough for Alcoa and Bank of America is completely on the ropes because of its terrible Countrywide buy and its myriad lending and legal problems, despite the strong support for Brian Moynihan expressed at the board level.

Those who propagated these myths will, of course, go unscathed. They won't own up. That's not how it's done. They will be sought after to be interviewed. They will be revered. That's just the way it is and 2012 will be no different. It would be funny, if it weren't so darned costly.

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