My Second Straight Winning Year

12/15/2011 11:29 am EST

Focus: MARKETS

Howard Gold

Founder & President, GoldenEgg Investing

In a year when many high-profile investors made big bets on the markets that failed, this column got it right much more often than not, writes MoneyShow.com editor-at-large Howard R. Gold.

‘Tis the season when we reflect on what we did over the previous 12 months and vow to do better next year.

For me, it’s when I review the yearly “performance” of this column, and although I don’t get paid for managing money, I feel I owe it to readers so they can better evaluate what I write in the future.

By that standard—and I’ll give you the caveats later—you should follow this column closely, because I’ve just had my second consecutive year of calling the market’s moves correctly.

Early in 2010, I warned that a nasty correction was ahead, tied to the European debt crisis. (Sound familiar?) That happened, but then in August 2010 in a column called “Three Reasons to Be (at Least a Little) Bullish,” I said stocks could move higher again. They did, in a rally that lasted eight months and took the S&P 500 index 30% higher.

I remained bullish into the spring of 2011, writing columns that pointed out the strong performance of small growth stocks and real estate investment trusts, among others.

But I also started to raise warning flags. In my first column of 2011, I wrote: “The biggest crisis yet looms for the Eurozone. And it’s most likely going to hit in Spain.

“A crisis this big would likely drive US stocks down by at least the 16% they fell from April through July 2010, and they might even suffer the 20% decline that traditionally signifies bear markets.”

That was right on target, though the big Mediterranean country at the center of this year’s crisis was, of course, Italy. (Spain’s bond yields have followed Italy’s higher, so it’s right behind.) Stocks did fall almost 20% from their April 29 peak at S&P 1,363.61 to their October 3 low just below 1,100.

I repeated those warnings on April 14:

“In the months ahead, we may see a bigger correction than we had earlier this year, perhaps even approaching last year’s Greece-induced 16% sell-off…,” I wrote. “Fear and volatility will return and the bears will appear to be back in the saddle.”

Two weeks later, the market topped out, but the euphoria was focused on silver, in which people could “invest” through one of several exchange traded funds.

“Make no mistake: this is speculation pure and simple, and wild speculation at that,” I wrote. “The only real reason anyone’s buying silver now is because they think the price is going up soon, and they don’t want to miss the boat. That’s the very definition of speculation, and it always ends very, very badly.”

That column, published April 28, nailed the top of the silver market near $50 an ounce. Silver started to crack the following week, and as I write this, silver futures trade in the low $30s.

But the entire “risk-on” trade unleashed by the Fed the previous August was teetering, so, starting in May, I warned readers to get defensive. “Another flare-up in the European debt crisis or the political games being played over extending the US debt ceiling could rattle markets in the months ahead,” I wrote, suggesting three simple ways investors could protect their portfolios.

On May 26, I zeroed in on one of the best-performing sectors, small-cap stocks. “It may turn out to be the giant small-cap bull market that came and went while no one noticed,” I wrote, advising people to lighten up.

The Russell 2000 index of small US stocks fell nearly 30% from its April peak to its October low, putting it deep in bear market territory.

By mid-June, I even wondered whether the entire market had seen its top. And on August 11, I asked whether we’d entered a new bear market.

I was particularly critical of international stocks, which US investors continued to buy even as they dumped US equities. I warned several times that emerging markets had run out of gas and that China in particular was in a long-term bear market. Most of the major markets except ours had entered bear market territory, as I wrote September 29.

NEXT: It Was All About Debt

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What was driving everything was the problem of debt, both in Europe and the US.

On June 9, I wrote about the debt cloud hanging over the markets, specifically citing the looming debt-ceiling debate in the US. On July 7, I called debt issues in Europe and the US two of the hurdles the markets had to clear before moving higher.

Debt, in fact, was the subject of my most prescient column all year: that the US’s AAA credit rating was history.
“You can kiss the AAA rating of US Treasury debt goodbye,” I wrote on July 27. “I don’t think this Congress and president will enact the dramatic changes S&P has strongly suggested are necessary for us to stay in the elite club of AAA-rated sovereigns.”

Barely more than a week later, of course, S&P downgraded the US’s long-term debt to AA+.

I had my share of clunkers, too, but they were mostly about the economy. In my annual “predictions” column, I said the economic recovery would pick up steam and inflation would rear its head again. Nope.

I also predicted that 2011 “will be the biggest year for Internet IPOs since the dot.com boom.” Not quite, as some expected offerings were delayed and others were disappointing. And the Treasury Department has not unloaded its remaining stakes in General Motors (GM), Chrysler, and AIG (AIG), as I predicted it would.

I was partly right that tablet computing would take off, although I overestimated the ability of Research in Motion (RIMM) to stay competitive. It’s still Apple’s (AAPL) game, with Amazon (AMZN) moving up on the outside.

Finally, my column doesn’t always reflect just my own views, but also the opinions of investing notables. Here’s how they did.

Laszlo Birinyi expected the market to take off for years to come. So far, it hasn’t happened. James Paulsen was also bullish, and the market hasn’t gone along. In the spring, technician Mark Arbeter of S&P proclaimed the bull market was over—now he doesn’t think that will happen until at least next year.

In a particularly popular column, economist Gary Shilling predicted a new recession for next year. We don’t know how that will turn out yet, but it looks pretty good—for Europe, at least.

The guru whose views appear to have been most vindicated to date, though, was Jim Stack, who took a contrarian stand that the US bull market wasn’t over yet. As he suggested, the S&P survived several tests of the key 1,100 area, and though it’s down from its highs, it’s still off those lows.

Keep your eye on that 1,100 number. If the S&P can stay above that level, we might have a decent 2012. If not, look out below. But we’ll deal with all that in the new year.

For now, I wish you all a great holiday season and a very happy and, I hope, more prosperous new year. And I hope my own luck doesn’t run out in 2012.

Howard R. Gold is editor at large for MoneyShow.com and a columnist for MarketWatch. Follow him on Twitter @howardrgold, read more commentary on www.howardrgold.com, and catch his political blog at www.independentagenda.com.

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