The Most Obvious of Years

 | Dec 31, 2013 | 10:00 AM EST  | Comments
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In many ways, this was the most obvious of years.

Investors were obviously fearful of anything coming from Washington, including small tax changes at the beginning of the year in order to stop us from falling off the fiscal cliff but were thought to disable the economy.

This was a year when we almost defaulted on our debt, bumbled into something too stupid to happen, a sequester, and shut down our government, which, obviously, should have crippled the economy.

This was a year when international crises like Cypriot bank troubles, a Brazilian collapse and a Chinese slowdown should have reverberated negatively throughout our economy because, obviously, we're all connected, aren't we?

This was a year when $100 oil was obviously going to stop whatever consumer spending was left following the horrific partisan rancor in Washington.

This was a year when a sudden spike in interest rates almost doubled the yield on the 10-year Treasury, which obviously would deal a deathblow to the housing market and crush auto sales with more difficult financing.

This was a year when Obamacare was supposed to crush small businesses, put the brakes on hiring and cause long-term deficit problems; therefore, it had to be stopped at any cost by a small but powerful group of Republicans who thought the whole act unconscionable -- even though it was the law of the land and couldn't be repealed by Congress.

Most of all, this was a year when so many companies faltered in sales, and stocks had already gone up so much in price that they would obviously be poleaxed when the Fed finally said it would taper.

What happened instead? A very non-obvious annual gain of 25% for the Dow, almost 30% for the S&P 500 and 37% for the Nasdaq as companies and their CEOs triumphed over sluggish growth -- albeit growth that got stronger as the year went on, culminating in a very solid GDP number and the beginning of a hiring boom.

Consumers spent more, not less -- they just did it in different ways, mostly online. Commercial construction, the biggest potential employer, began to come back as credit loosened. Pent-up demand held up the housing and auto markets and continues to do so.

The key question as we go into the new year is how such a series of obviously negative events could amount to positives for the economy and the stock market. The answer is that the numerous market naysayers forgot some basic laws of supply and demand.

First, demand finally caught up with the supply of pretty much everything: housing and its accoutrements; autos and related products; hard goods like computers and cellphones and even desktops and laptops; and commercial buildings, which, astonishingly, had simply stopped being built in most areas of the economy. People sometimes forget that, like it or not, we are a growth economy, even if you think that there would be little growth without the Fed -- something that I believe will prove demonstrably false in the coming years.

Most important, demand caught up with the supply of stocks, as many companies used the downturn to buy up shares, causing a shortage of quality equities. Meanwhile, other companies managed to acquire or split their way into growth. Almost every single acquisition brought stock advances of major magnitude. There simply aren't enough stocks being created, despite a huge number of initial public offerings. And demand for high-quality equities, Internet names, social and mobile positives that included cloud-based companies, and companies that gave decent dividends was simply voracious.

Plus, the demand that the Fed did create with low rates was distrusted or derided by ideologues who hijacked the economic discourse by proclaiming that it was all one big bubble. Anyone with an elemental knowledge of politics and history knows that ideologues are never wrong, and they will repeat their strident jeremiads to investors who they confuse and obfuscate with impunity while keeping one foot out the door and in CDs. I despise them for keeping you from making money.

We could go back and see who was wrong and who believed that things had to collapse, with the notable exception of Nouriel Roubini and Meredith Whitney, the Bob Prechter and Elaine Garzarelli of this generation. They could never get bullish given how they made their names being stupendously bearish at the right time and then refused to declare victory and switch directions. All the naysayers will be forgiven, because no one ever calls out bearish guesses for fear they might be right tomorrow.

We could castigate those who fooled us into thinking that we had to be in risk-on or risk-off modes at all times, a term I never understood to do anything but turn a nation into poorly timed renters instead of well-endowed investors. But they will get a free pass, because that's the nature of this game. Notice, thank heavens, no one uses those risk-on/risk-off terms anymore, something I feel most proud of because they all knew I was gunning for them, and I am relentless when I think that someone's confusing investors for no reason whatsoever other than trying to sound knowledgeable and cool.

We could criticize everyone who blew the government troubles out or proportion, not realizing that the shenanigans had nothing to do with the price-to-earnings multiple of Bristol-Myers Squibb (BMY). But they will get a free pass, too. They will not be ridiculed or called out by commentators because they are friends or good guests, or because the commentators must maintain neutrality in the name of what, I can't figure out. Page views? Ratings? Assets under management?

The bears will not be called out by their bullish peers because their peers are too vulnerable to attack for being too bullish when, not if, they are taken apart by the lurking, looming bear market that's right around the corner. Isn't that why so many abandoned ship for every obvious negative I ticked off above?

So a new year begins, filled with the obvious negatives of higher rates, a new Fed chair, a president who despised the Republicans, and vice versa, even as we got some sort of a deal led by, of all people, Congressional ideologues who were smart enough to see the damage they had caused.

All I can say is the obvious negatives will be even more obvious now that stocks have advanced so much that anyone who remains bullish will be presumed to be as much a charlatan as last year at this time.

I'll finish this litany with a simple apology: I'm sorry that I was so bullish in my writings and in my on-air comments; I regret that I was right, and I promise I will never try to be right again because, for the record, it just ain't worth it, and don't let anyone tell you otherwise.

Random Musings: I want to thank all our subscribers for their faithfulness in 2013, including the many new ones who are restoring the strength of this once almost-defeated organization.

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